NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey

Sule Alan, Mehmet Cemalcılar, Dean Karlan, Jonathan Zinman

NBER Working Paper No. 20956
Issued in February 2015, Revised in January 2016
NBER Program(s):Development Economics, Law and Economics, Labor Studies

The pricing and advertising of tied add-ons and overages have come under increasing scrutiny. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing holders of “free” checking accounts, we find that promoting a large discount on the 60% APR charged for overdrafts reduces overdraft usage. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. We discuss implications for interventions to promote transparency in pricing and advertising, and for models of shrouded equilibria, limited attention, and salience.

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Document Object Identifier (DOI): 10.3386/w20956

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