Two Essays on Steering Consumers toward Better Financial Choices
This dissertation examines consumers' financial decisions, with the overarching objective of identifying ways to steer consumers toward better choices. The first essay examines consumers' credit card payment behavior. When consumers face the task of allocating their funds among several credit cards, they often adopt a suboptimal strategy, because they tend to pay off the credit card with the smallest balance first. The optimal strategy would be instead to pay off the credit card with the highest interest rate. This essay tests an intervention that steers consumers toward more effective payments. The intervention consists of integrating multiple debts into one account, showing the sum and cumulative interest charges of all debts. In a game with repeated decisions, when consumers are presented with this integrated account, they allocate more money toward the credit cards with higher interest rates. This effect is mediated by a shift in their goal reference point: When the sum is salient, consumers focus more on the superordinate goal of reducing their total debt (as opposed to the subgoals of paying off each credit card). The second essay examines consumers' financial risk-seeking after an initial failed investment. Three experiments demonstrate that when others suffer as a result of the failure, consumers tend to be more risk-averse subsequently, and this is mediated by guilt. However, a necessary condition is that the initial outcome be under consumers' personal control, because a failure they had no control over will not lead to guilt and thus will not result in less risk-seeking.