Learning in the credit card market

Description

"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"--National Bureau of Economic Research web site.

Subjects

Series Statement

• NBER working paper series -- working paper 13822
• Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13822.

Links

• http://papers.nber.org/papers/w13822
• URL