Information Disclosure, Cognitive Biases and Payday Borrowing
Last registered on February 07, 2017

Pre-Trial

Trial Information
General Information
Title
Information Disclosure, Cognitive Biases and Payday Borrowing
RCT ID
AEARCTR-0001757
Initial registration date
February 07, 2017
Last updated
February 07, 2017 10:10 AM EST
Location(s)
Region
Primary Investigator
Affiliation
Booth School of Business University of Chicago
Other Primary Investigator(s)
PI Affiliation
University of California, Berkeley
Additional Trial Information
Status
Completed
Start date
2008-05-01
End date
2009-03-15
Secondary IDs
Abstract
Can psychology-guided information disclosure induce borrowers to lower their use of high-cost debt? In a field experiment at payday stores, we find that information that makes people think less narrowly (over time) about finance costs results in less borrowing. In particular, reinforcing the adding-up dollar fees incurred when rolling over loans reduces the take-up of future payday loans by 11% in the subsequent 4 months. Although we remain agnostic as to the overall sufficiency of better disclosure policy to “remedy” payday borrowing, we cast the 11% reduction in borrowing in light of the relative low cost of this policy.
External Link(s)
Registration Citation
Citation
Bertrand, Marianne and Adair Morse. 2017. " Information Disclosure, Cognitive Biases and Payday Borrowing." AEA RCT Registry. February 07. https://doi.org/10.1257/rct.1757-1.0.
Former Citation
Bertrand, Marianne, Marianne Bertrand and Adair Morse. 2017. " Information Disclosure, Cognitive Biases and Payday Borrowing." AEA RCT Registry. February 07. https://www.socialscienceregistry.org/trials/1757/history/13819.
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Experimental Details
Interventions
Intervention(s)
The researchers evaluated a randomized field experiment to examine the effect of alternative information disclosures on current borrowers' future borrowing decisions. Customers at 77 payday lending stores in 11 states were asked to take part in the experiment. Control group individuals filled out a short survey and received the standard envelope used by the payday lender containing the loan cash and terms. Treatment group individuals received a different envelope containing one of three different treatments. The first compared the average APR of payday loans to the APRs of other familiar credit instruments, i.e. credit cards, car loans, and subprime mortgages. The second compared the cost of financing $300 by payday loan versus the same by a credit card for intervals ranging from two weeks to three months. The third showed a frequency distribution of how many times borrowers refinance a payday loan before paying it back. In addition, a self-control treatment was included for all groups in the form of a savings planner sheet.

The second treatment had the most consistently statistically significant effect on the main dependent variables, "Indicator for Loan" and "Loan Amount". However, multiple empirical specifications suggest that all three information treatment effects reduced propensity to borrow as well as loan amounts. The Savings Planner treatment appeared to have no effect.
Intervention Start Date
2008-05-01
Intervention End Date
2008-10-31
Primary Outcomes
Primary Outcomes (end points)
Indicator for Loan (a dummy indicating whether an individual borrowed during a given pay cycle); Loan Amount (amount borrowed in a given pay cycle)
Primary Outcomes (explanation)
Secondary Outcomes
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
The field experiment was implemented at 77 stores of the partner payday lending company. To set up the random application of treatments, treatment was assigned at the store-day level; i.e. all treatment participants who entered a certain store on a given day received the same information treatment envelope. The following day, a new treatment envelope would be randomly assigned to all treatment individuals. The assignment algorithm forced dispersion of treatments by not allowing duplicate treatments for a given store until all possible combinations of information treatment and savings planner treatment had been assigned at least once.

After the conclusion of the intervention, the researchers received administrative data on all transactions by the participating borrowers from 2002 to October 1, 2008. A dummy variable indicating whether a participant borrowed during a given pay cycle was generated for all participants, e.g. the observation was recorded as "0" if there was no record of a transaction during a pay cycle. The main empirical specification regressed this dummy, "Indicator for Loan" on a set of treatment dummy variables while controlling for Store*Year fixed effects, day-of-the-week fixed effects, and individual fixed effects. A second specification featured the loan amount in a given pay cycle as the dependent variable in a Tobin model.
Experimental Design Details
Randomization Method
Randomization performed by computer
Randomization Unit
Randomization at store-day level (i.e. everyone who enters a particular store receives the same treatment on a certain day)
Was the treatment clustered?
Yes
Experiment Characteristics
Sample size: planned number of clusters
1200 store days
Sample size: planned number of observations
229,862 participant pay cycles
Sample size (or number of clusters) by treatment arms
The distribution of treatments targeted and realized was roughly equal across informational treatment and control arms.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB
INSTITUTIONAL REVIEW BOARDS (IRBs)
IRB Name
Social & Behavioral Sciences IRB, University of Chicago
IRB Approval Date
Details not available
IRB Approval Number
Details not available
Post-Trial
Post Trial Information
Study Withdrawal
Intervention
Is the intervention completed?
Yes
Intervention Completion Date
October 31, 2008, 12:00 AM +00:00
Is data collection complete?
Yes
Data Collection Completion Date
January 31, 2009, 12:00 AM +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
924 store days
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
229,862 participant pay cycles
Final Sample Size (or Number of Clusters) by Treatment Arms
The distribution of targeted versus realized assignment was roughly equal across the informational treatment arms.
Data Publication
Data Publication
Is public data available?
No
Program Files
Program Files
Reports and Papers
Preliminary Reports
Relevant Papers
Abstract
Can psychology-guided information disclosure induce borrowers to lower their use of high-cost debt? In a field experiment at payday stores, we find that information that makes people think less narrowly (over time) about finance costs results in less borrowing. In particular, reinforcing the adding-up dollar fees incurred when rolling over loans reduces the take-up of future payday loans by 11% in the subsequent 4 months. Although we remain agnostic as to the overall sufficiency of better disclosure policy to “remedy” payday borrowing, we cast the 11% reduction in borrowing in light of the relative low cost of this policy.
Citation
Bertrand, Marianne, and Adair Morse. 2011. "Information Disclosure, Cognitive Biases, and Payday Borrowing." The Journal of Finance 66(2011): 1865-1893.