Learning in the Credit Card Market

Sumit Agarwal, John Driscoll, Xavier Gabaix and David Laibson

No 13822, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Agents with more experience make better choices. We measure learning dynamics using a panel with four million monthly credit card statements. We study add-on fees, specifically cash advance, late payment, and overlimit fees. New credit card accounts generate fee payments of $15 per month. Through negative feedback -- i.e. paying a fee -- consumers learn to avoid triggering future fees. Paying a fee last month reduces the likelihood of paying a fee in the current month by about 40%. Controlling for account fixed effects, monthly fee payments fall by 75% during the first three years of account life. We find that learning is not monotonic. Knowledge effectively depreciates about 10% per month, implying that learning displays a strong recency effect.

JEL-codes: D1 D40 D8 G20 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-knm
Note: AG AP LE
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Citations: View citations in EconPapers (59)

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Working Paper: Learning in the Credit Card Market (2008)
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