Asked by Sheri Walton on May 23, 2024
Verified
Credit card companies require low minimum payments that impose significant interest costs on consumers choosing to pay the minimum. Recent legislation has required credit card companies to show on customer billing statements how much interest would be paid and how long it would take to repay the current balance if only the minimum is paid. Behavioral economists would expect this legislation to
A) substantially increase monthly payments, as consumers make better decisions when they have more information.
B) overcome the status quo bias that keeps people paying the minimum.
C) cause credit card companies to increase the minimum payments.
D) have little effect, as anchoring would keep many people paying the minimum.
Behavioral Economists
Scholars who study the psychological, social, cognitive, and emotional factors affecting the economic decisions of individuals and institutions.
Status Quo Bias
The tendency most people have when making choices to select any option that is presented as the default (status quo) option. Explainable by prospect theory and loss aversion.
Anchoring
A cognitive bias in decision-making where individuals rely too heavily on an initial piece of information (the "anchor") when making judgments.
- Identify the influence of anchoring on decision-making.
- Comprehend the advantages that credit card companies derive from the patterns of consumer behavior.
Verified Answer
ZK
zarin kassamaliMay 27, 2024
Final Answer :
D
Explanation :
The legislation provides more information, but behavioral economists would argue that anchoring, a cognitive bias where individuals rely too heavily on an initial piece of information (in this case, the minimum payment amount) when making decisions, would likely keep many people paying the minimum despite knowing the long-term costs.
Learning Objectives
- Identify the influence of anchoring on decision-making.
- Comprehend the advantages that credit card companies derive from the patterns of consumer behavior.