American Economic Review Vol. 107 No. 4 2017
Borrowing on the Wrong Credit Card? Evidence from Mexico
open access
Abstract
We establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in Mexico. We find that relative prices are weak predictors of the allocation of debt, purchases, and payments. Consumers allocate a large fraction of their debt to high-interest cards, incurring a cost of 31 percent above the minimum. Using an experiment, we find that consumers do not substitute in the price margin, although they respond to salient temporary low-interest offers. We conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market.
- DOI
- 10.1257/aer.20120273
- Volume
- 107
- Issue
- 4
- Pages
- 1335-1361
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref