The role of mental accounting in consumer credit decision processes

Ranyard, Rob and Hinkley, L. and Williamson, Janis and McHugh, S. (2006) The role of mental accounting in consumer credit decision processes. Journal of Economic Psychology, 27 (4). pp. 571-588. ISSN 0167-4870

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Abstract

The role of mental accounts in consumer credit decision making was investigated. First, in a conversation-based process-tracing study, 96 adults with experience of credit were presented with minimal descriptions of three instalment credit options in realistic consumer scenarios. They chose a credit option and a repayment plan, but before doing so could request further information. When choosing the source of credit, participants usually sought and compared information on Annual Percentage Rate (APR) or total cost (TC), often using simple decision heuristics. When choosing repayment plans, they frequently asked about, and made trade-oVs between, monthly repayment amounts,TC, and loan duration. Second, in an independent groups experiment, TC and APR information were systematically varied. Participants chose from pairs of repayment plans conficting in loan duration and monthly repayment amount (ND28). Although APR signifcantly infuenced choice, its effect was substantially moderated by TC information. It was concluded that: (i) although APR is an important attribute for source of credit decisions, TC is more important for repayment plan decisions, since consumers often represent specific credit plans in terms of total mental accounts; (ii)recurrent budget period accounts are used to evaluate monthly repayments and anticipate future goals and hazards.

Item Type: Article
Additional Information: Full text of this article is not available in this repository. Definitive article published in Journal of Economic Policy � 2006 Elsevier B.V. All rights reserved. Journal of Economic Policy can be found online here http://www.sciencedirect.com/science/journal/01674870
Uncontrolled Keywords: Financial information,Interest rates
Subjects: B Philosophy. Psychology. Religion > BF Psychology
Divisions: School of Education and Psychology > Psychology
Depositing User: Scott Wilson
Date Deposited: 26 Nov 2013 12:52
Last Modified: 09 Dec 2013 15:23
Identification Number: 10.1016/j.joep.2005.11.001
URI: http://ubir.bolton.ac.uk/id/eprint/540

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