Behaviorally guided information reduces payday loan usage

Again, from the Journal of Finance:

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.

Narrow framing is arguably one of the most pervasive biases – and it’s easy to see why. It’s hard to take a step back and look at the big picture, or sometimes see how all the pieces fit together. But by presenting information in a simple, direct, and intelligent way, we can encourage individuals to make better decisions.

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