Abstract: This paper studies the sources of suboptimal allocations observed in credit card repayments using a diagnostic laboratory experiment. We find that optimization ability and limited attention are jointly insufficient to explain the puzzle. Moving beyond existing results, we find that the inherent negative frame of the debt payment problem interferes with subjects’ ability to optimize and hinders learning. We show that subjects predominantly rely on the irrelevant balance information while forming their decisions, regardless of how vividly the balance information is displayed. Using additional treatments, we find that the debt frame increases subjects’ focus on the irrelevant balance information.

Presented at American Finance Association Poster Session 2023*, Financial Management Association 2022*, Saint Louis University 2022*, Society for Experimental Finance 2021, Maastricht Behavioral and Experimental Economics Symposium (M-BEES) 2021, NeuroPsychoEconomics Conference 2021, Western Economic Association International (WEAI) 2021, Economic Science Association (ESA) JMC Series 2020, Southwest Experimental and Behavioral Economics Workshop (SWEBE) 2019, Washington University St. Louis EGSC 2019, Economic Science Association (ESA) North America 2019*, UC Santa Barbara Experimental Economics Workshop 2019 

Abstract: This paper experimentally studies how people learn about their environment when their subjective understanding of the environment, their mental model, is misspecified. We use people's tendency to hold optimistic beliefs about their abilities to generate a significant amount of model misspecification and investigate the implications of overconfidence as a misspecified mental model on learning about own ability and a fundamental. Consistent with the theoretical predictions, overconfident subjects develop pessimistic beliefs about the fundamental and take growingly suboptimal actions. Inconsistent with the theoretical prediction, endogenous feedback does not exacerbate the extent of suboptimal behavior. Investigating how subjects learn about their own ability reveals that abundant feedback "weakens" misspecified mental models. The "weakening" of mental models is more pronounced with endogenous feedback and explains why endogenous feedback may not exacerbate the extent of suboptimal behavior.

Presented at Economic Science Association (ESA) North America 2022, UC Santa Barbara Experimental Economics Workshop 2020 

Abstract: Borrowers with revolving debt on multiple accounts fail to exploit price differences in their accounts while making their repayments and leave a significant amount of money on the table. Constructing a simple repayment environment in the laboratory, we test the role of a set of behavioral mechanisms that would directly inform the design of consumer protection policies.  We find that providing salient interest rate disclosure has no effect while disclosing the interest rate in a fee format has modest effects. On the other hand, providing an opportunity to purchase automated financial advice reveals that subjects are predominantly aware of their choice inefficiencies and are relatively good at gauging the extent of their mistakes and using financial advice. Our results suggest that promoting and subsidizing consumer financial technology applications that provide automated financial advice would be a substantially more effective way of protecting consumers from simple arbitrage failures than conventional disclosure policies.

Presented at Society for Experimental Finance 2022, Economic Science Association (ESA) North America 2022*, UC Santa Barbara Experimental Economics Workshop 2020 

*presentation by the coauthor