New article in SAGE Journals

Photo by: Pickawood on Unsplash

15 November 2021 13:42

New article in SAGE Journals

Samuel D. Hirshman and Abigail B. Sussman have published a new article in Journal of Marketing: “Minimum Payments Alter Debt Repayment Strategies across Multiple Cards”.

US Households currently hold $770 billion in credit card debt, often managing repayments across multiple accounts. The researchers investigate how minimum payments (i.e., the requirement to allocate at least some money to each account with a balance) alter consumers’ allocation strategies across multiple accounts. Across four experiments, they find that minimum payment requirements cause consumers to increase dispersion (i.e., spread their repayments more evenly) across accounts. They term this change in strategy the dispersion effect of minimum payments and provide evidence that it can be costly for consumers. They find that the effect is partially driven by the tendency for consumers to interpret minimum payment requirements as recommendations to pay more than the minimum amount.

While the presence of the minimum payment requirement is unlikely to change, they propose that marketers and policymakers can influence the effects of minimum payments on dispersion by altering the way that information is displayed to consumers. Specifically, they investigate five distinct information displays and find that choice of display can either exaggerate or minimize dispersion and corresponding costs. They discuss implications for consumers, policy makers, and firms, with a particular focus on ways to improve consumer financial well-being.


About the author:

Samuel David Hirshman is an associate professor (tenure track) at the Norwegian School of Economics and affiliate at FAIR-the Choice Lab. He received his PhD in Behavioral Science from the University of Chicago Booth School of Business and did a post-doc at the CU-Boulder Leeds School of Business. He primarily study topics in behavioral economics, and his research examines ownership, financial decision making, learning, and core behavioral economics models like Prospect Theory.