TY - JOUR AU - Bertrand,Marianne AU - Karlin,Dean AU - Mullainathan,Sendhil AU - Shafir,Eldar AU - Zinman,Jonathan TI - What's Psychology Worth? A Field Experiment in the Consumer Credit Market JF - National Bureau of Economic Research Working Paper Series VL - No. 11892 PY - 2005 Y2 - December 2005 UR - http://www.nber.org/papers/w11892 L1 - http://www.nber.org/papers/w11892.pdf N1 - Author contact info: Marianne Bertrand Booth School of Business University of Chicago 5807 South Woodlawn Avenue Chicago, IL 60637 Tel: 773/834-5943 Fax: 773/702-0458 E-Mail: marianne.bertrand@chicagobooth.edu Dean Karlin Sendhil Mullainathan Department of Economics Littauer M-18 Harvard University Cambridge, MA 02138 Tel: 617/496-2720 Fax: 617/495-7730 E-Mail: mullain@fas.harvard.edu Eldar Shafir Dept. of Psychology Princeton University Green Hall Princeton, NJ 08544 E-Mail: shafir@princeton.edu Jonathan Zinman Department of Economics Dartmouth College 314 Rockefeller Hall Hanover, NH 03755 Tel: 603/646-0075 Fax: 603/646-2122 E-Mail: jzinman@dartmouth.edu M2 - featured in NBER digest on 2006-08-01 AB - Numerous laboratory studies find that minor nuances of presentation and description change behavior in ways that are inconsistent with standard economic models. How much do these context effect matter in natural settings, when consumers make large, real decisions and have the opportunity to learn from experience? We report on a field experiment designed to address this question. A South African lender sent letters offering incumbent clients large, short-term loans at randomly chosen interest rates. The letters also contained independently randomized psychological "features" that were motivated by specific types of frames and cues shown to be powerful in the lab, but which, from a normative perspective, ought to have no impact. Consistent with standard economics, the interest rate significantly affected loan take-up. Inconsistent with standard economics, some of the psychological features also significantly affected take-up. The average effect of a psychological manipulation was equivalent to a one half percentage point change in the monthly interest rate. Interestingly, the psychological features appear to have greater impact in the context of less advantageous offers and persist across different income and education levels. In short, even in a market setting with large stakes and experienced customers, subtle psychological features appear to be powerful drivers of behavior. The findings pose a challenge for the social sciences: they suggest that psychological nuance matters but may be inherently difficult to predict given the impact of context. Successful incorporation of psychological features into field studies is likely to prove a vital, but nontrivial, addition to the formation of more general theories on when, why, and how frames and cues influence important decisions. ER -