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Keywords:

  • Consumer financial decisions;
  • mortgages;
  • resource depletion;
  • financial literacy

Abstract

The authors suggest that the process of shopping for a home and choosing between alternative property features depletes individuals’ cognitive resources, which in turn results in sub-optimal home financing decisions. Thus, in the span of time that follows the shopping experience, consumers will devote less attention to choosing a mortgage, resulting in a higher propensity to select higher-risk, adjustable-rate mortgage products. The results of two controlled experiments demonstrate that participants in an online house shopping simulation were more likely to select one of the high-risk mortgage offers, and spent less time selecting a mortgage than participants in the control condition. In addition, contrary to expectations, warning participants about cognitive resource depletion exacerbated these effects. These findings imply that consumer decisions could be improved by imposing a temporal separation between shopping for a home and shopping for financing.