Learning in the Credit Card Market / Sumit Agarwal, John C. Driscoll, Xavier Gabaix, David Laibson.

Format:

Book

Author/Creator:

Agarwal, Sumit.

Contributor:

National Bureau of Economic Research.

Driscoll, John C.

Gabaix, Xavier.

Laibson, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13822.

NBER working paper series no. w13822

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

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 effects, monthly fee payments fall by 75% during the first three years of account life. We find that learning is not monotonic. Knowledge effectively depreciates about 10% per month, implying that learning displays a strong recency effect.

Notes:

Print version record

February 2008.