2011
DOI: 10.2139/ssrn.1091623
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Learning in the Credit Card Market

Abstract: Agents with more experience make better choices. We measure learning dynamics using a panel with four million monthly credit card statements. We study add-on fees, specifically cash advance, late payment, and overlimit fees. New credit card accounts generate fee payments of $15 per month. Through negative feedback -i.e. paying a fee -consumers learn to avoid triggering future fees. Paying a fee last month reduces the likelihood of paying a fee in the current month by about 40%. Controlling for account fixed ef… Show more

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Cited by 39 publications
(34 citation statements)
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“…If you prefer to teach the first principle using field data, you could explain that credit card users pay fewer and fewer fees-for instance, late payment fees-the more experience they have with their card (Agarwal et al 2013). Likewise, consumers switch telephone plans, moving toward the best one, as they gain experience (Miravete 2003).…”
Section: Principle 1: People Try To Choose the Best Feasible Option mentioning
confidence: 99%
“…If you prefer to teach the first principle using field data, you could explain that credit card users pay fewer and fewer fees-for instance, late payment fees-the more experience they have with their card (Agarwal et al 2013). Likewise, consumers switch telephone plans, moving toward the best one, as they gain experience (Miravete 2003).…”
Section: Principle 1: People Try To Choose the Best Feasible Option mentioning
confidence: 99%
“…While investor-owned firms provide the bulk of consumer financial services today, non-investor-owned firms, including credit unions and mutual thrifts, remain significant financial service providers. As of December 2005, credit unions comprised 7.5% Driscoll, Gabaix, and Laibson (2008) show that in the month following being charged a fee on their credit card account, consumers are 40% less likely to incur another fee than their baseline probability. However, their likelihood of incurring a fee increases as the period since they last incurred a fee increases.…”
Section: Evidencementioning
confidence: 99%
“…That is, the experience of being flooded leads homeowners to interpret the statistical information differently (e.g., Haselhuhn et al 2012). Second, the same homeowners could be learning and forgetting (e.g., Agarwal et al 2008). Third, if accessing past information involves a high cost, it could be completely rational to ignore this information (e.g., Sims 2010; Ma ´ c kowiak and Wiederholt 2012).…”
mentioning
confidence: 99%