Describes market experiments conducted by a major credit card issuer. In a typical experiment, the issuer sends out hundreds of thousands of solicitations based on information received from credit reporting agencies (e.g., credit score, past delinquencies, etc.). Selection bias is striking: the average risk profile of those responding to higher interest rates is significantly worse than that of respondents to lower rates. Tracking respondents for 27 months after the experiment, respondents to higher rates displayed significantly higher delinquency and bankruptcy rates. Based on a research paper by Larry Ausubel.
Al-Najjar, N., Besanko, D. and Uchoa, R. (2017), "Credit Solicitations as Market Experiments in the U.S. Credit Card Industry", Kellogg School of Management Cases. https://doi.org/10.1108/case.kellogg.2016.000083Download as .RIS
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