Does Disclosure Affect Consumer Behavior?

A new study funded by The American Bankruptcy Institute and The Ford Foundation found that disclosure of credit card interest rates could have an opposite effect than intended.

“For many shoppers knowledge of interest rates and mounting debt was so depressing that it spurs them to binge to alleviate the gloom” -WSJ This Morning

The study found that emotion has a much greater effect on spending behaviors than awareness of interest rates. 1 in 5 people in the study stated they tended to shop to end a bad mood. One explanation was that most consumers don’t understand how moods influence their spending behavior.

The new credit card disclosure laws are based on the assumption that when consumers have knowledge of the actual rates they will act rationally, but this is a flawed assumption. Anyone who has studied consumer behavior knows that emotion often dominates logic, so awareness of credit rates alone will not be effective in preventing overspending.

Story from the WSJ This Morning Podcast from 7/18/07

Abstract of Study