Information Disclosure Cognitive Biases and Payday Borrowing.

Bertrand & Morse (2011)
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Summary by 
Mark Egan

The authors conducted a field experiment at a national chain of payday stores to examine the effectiveness of mandated disclosure with the goal of helping payday-loans borrowers overcome cognitive biases or limitations. Chief among these is a common failure to appreciate the true annualized interest rate of the loans, which run in several thousand percent. The disclosure information they provide includes annualized rates of interest, credit-card comparisons and peer usage statistics. They find that information that showing the adding-up effect of loan fees over several pay-cycles helps people think less narrowly about finance costs and results in 11% less borrowing in the subsequent 4 months.

A randomized evaluation showed that envelopes printed with dollar costs over time reduced borrowing from the payday lender in later pay cycles by about 11%.The other information types did not significantly reduce the likelihood of borrowing in a post-intervention pay cycle.