Conned by a Cashback? Disclosure, Nudges and Consumer Rationality in Mortgage Choice

Last registered on January 23, 2020

Pre-Trial

Trial Information

General Information

Title
Conned by a Cashback? Disclosure, Nudges and Consumer Rationality in Mortgage Choice
RCT ID
AEARCTR-0005243
Initial registration date
January 07, 2020

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
January 10, 2020, 11:16 AM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
January 23, 2020, 5:13 AM EST

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Region

Primary Investigator

Affiliation

Other Primary Investigator(s)

PI Affiliation
Trinity College Dublin

Additional Trial Information

Status
Completed
Start date
2018-07-17
End date
2018-07-31
Secondary IDs
Abstract
The study conducts a series of online choice experiments using nationally representative data to assess the impact of advanced consumer disclosure and misleading marketing nudges on preference for expensive cashback mortgage products in Ireland. Financial products with a cashback feature typically cost consumers significantly more in the long run.
External Link(s)

Registration Citation

Citation
King, Michael and Anuj Singh. 2020. "Conned by a Cashback? Disclosure, Nudges and Consumer Rationality in Mortgage Choice." AEA RCT Registry. January 23. https://doi.org/10.1257/rct.5243
Experimental Details

Interventions

Intervention(s)
The experiment attempts to explore the impact of two treatments in the choice of cashback mortgage. Treatment 1 assesses the impact of advanced disclosure on the choice of cashback mortgage. This intervention mirrors the efforts of some price comparison websites to indicate directly the lowest cost option and present cost differential with the cheapest for each loan. We provide this information at the point of decision and term this an ‘advanced disclosure’ as it would take an upgrading of current disclosure regulation to force banks and mortgage brokers to provide a comparison table, either physically or electronically, of all products available. On the other hand, Treatment 2 is very basic promotional marketing that is expected to encourage respondents to choose cashback mortgage.
Intervention Start Date
2018-07-17
Intervention End Date
2018-07-31

Primary Outcomes

Primary Outcomes (end points)
The chapter finds evidence for the effectiveness of Treatment 1, where advanced financial disclosure is effective in turning consumers away from costly cashback mortgages. We believe our findings provide a rationale for regulators to engage in behaviourally informed advanced disclosure interventions. For the second hypothesis on marketing negative nudge, we find that this ‘sludge’ is significantly more effective at encouraging prospective house buyers into choosing cashback mortgages. We consider this a lower bound affect, as our text-based negative nudge simply cannot compete with expensive video-based advertising on television or the internet used by banks.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Our research involves three distinct, but related, experiments. Each experiment involves an advanced disclosure treatment and a marketing negative nudge treatment, as well as a control group. In notation it can be described as a (1+2)*3 design. In each experiment, respondents choose between a hypothetical high cost cashback mortgage and a lower cost hypothetical non-cashback mortgage. The particulars of each hypothetical mortgage choices can be considered representative of options on the Irish mortgage market in the summer of 2018. In the first experiment the mortgage cashback is 2 percent at the point of draw down. In the second experiment, the cashback is 2 percent at the point of draw down, but the amount of deposit for no-cashback mortgage is adjusted downwards so that both mortgage choices in the experiment are effectively identical from a short-term liquidity perspective. In experiment three, the cashback is broken down into to 1 percent immediately and 1 percent 12 months after draw down, again mirroring a product on the Irish mortgage market.
Experimental Design Details
Randomization Method
Random Selection of Respondents from a Large Nationally Representative Online Panel of Respondents in Ireland.
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
3000
Sample size: planned number of observations
3000
Sample size (or number of clusters) by treatment arms
Control Group: 1000 Individuals, Treatment 1: 1000 Individuals, Treatment 2: 1000 Individuals
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials