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Behavioral Messages and Debt Repayment

Author

Listed:
  • Barboni, Giorgia

    (University of Warwick, Warwick Business School and CAGE)

  • Cardenas, Juan Camilo

    (Department of Economics, U. Los Andes and U. Massachussets Amherst.)

  • de Roux, Nicolas

    (Department of Economics, Universidad de Los Andes)

Abstract
We use a randomized experiment involving 7,029 late-paying clients of a large Colombian bank to compare the effects on loan delinquency of text messages that encourage repayment through different behavioral angles – increased attention, reciprocity, social norms, moral norms, and environmental and sustainability concerns. We find that receiving a behavioral message decreases borrowers’ average likelihood to be late by 4%. The effects are more pronounced when messages leverage social norms. We use machine learning tools to assess treatment heterogeneity and find that women, borrowers with lower income and with lower credit score, respond more to behavioral messages. Late customers holding secured products with longer maturity are also more responsive. In a second experiment pushing the same messages to 8,019 on-time borrowers, we find precisely estimated zero effects, suggesting that these types of messages may not be the right tool to prevent on-time borrowers from falling into loan delinquency. Our interventions provide novel evidence that behavioral messages are most effective when borrowers are delinquent, poorer, have higher debt, or when they have a strong borrowing relationship with the financial services provider.

Suggested Citation

  • Barboni, Giorgia & Cardenas, Juan Camilo & de Roux, Nicolas, 2022. "Behavioral Messages and Debt Repayment," CAGE Online Working Paper Series 633, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:633
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    More about this item

    Keywords

    Loan Delinquency ; Behavioral Messages ; Personal loans ; Field Experiments JEL Classification: G51 ; D91;
    All these keywords.

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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