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Information Disclosure, Cognitive Biases, and Payday Borrowing




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    • Bertrand is from the Booth School of Business at the University of Chicago, NBER, CEPR, and IZA. Morse is from the Booth School of Business at the University of Chicago. We thank the Initiative on Global Markets at the University of Chicago, the National Poverty Center at the University of Michigan, the Templeton Foundation, the William Ladany Memorial Faculty Research Fund, the Center for Research on Security Prices, and the Stigler Center for financial support. We also thank a number of people for helpful comments, including John Caskey, Shawn Cole, Todd Gormley, Victoria Ivashina, AnnaMaria Lusardi, Tavneet Suri, Jeremy Tobacman, Peter Tufano, John Zinman, and seminar or conference participants at Booth School of Business, the CEPR-Gerzensee Asset Pricing Week, Copenhagen Business School, the University of Illinois at Chicago, the European Finance Association Summer Meetings, the FDIC-JFSR Bank Research Conference, the Federal Trade Commission, the Milton Freidman Conference on Finance and Development, the National Poverty Center Spring 2009 Conference, the NBER Summer Institute in Corporate Finance, the NBER Behavioral Finance Group, the NBER Household Finance Group, the Norwegian School of Management, the Philadelphia Federal Reserve Conference on Recent Developments in Consumer Credit and Payments, the Stockholm School of Economics, and Wharton.


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.