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Journal of Finance Vol. 73 No. 2 2018

Unshrouding: Evidence from Bank Overdrafts in Turkey

Sule Alan; MEHMET CEMALCILAR; Dean Karlan; Jonathan Zinman1,2,3,4,5

1 University of Essex · 2 Koç University · 3 Deutz (Germany) · 4 Issues Research · 5 Federal Reserve Bank of Philadelphia

open access

Abstract

Lower prices produce higher demand… or do they? A bank's direct marketing to holders of “free” checking accounts shows that a large discount on 60% APR overdrafts reduces overdraft usage, especially when bundled with a discount on debit card or autodebit transactions. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after the messages stop. These results do not square easily with classical models of consumer choice and firm competition. Instead, they support behavioral models where consumers underestimate and are inattentive to overdraft costs, and firms respond by shrouding overdraft prices in equilibrium.

DOI
10.1111/jofi.12593
Volume
73
Issue
2
Pages
481-522
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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