Edited by Joshua C. Teitelbaum and Kathryn Zeiler
Chapter 5: The effect of advertising on home equity credit choices
Agarwal and Ambrose examine the effect of direct mail (commonly referred to as junk mail) advertising on individual financial decisions by studying consumer choice in relation to home equity debt contracts. Consistent with the theoretical predictions, the authors find that financial variables underlying the relative pricing of debt contracts are the leading factors explaining consumers’ home equity debt choice. Furthermore, they also find that the intended use of debt proceeds significantly impacts consumer choice. However, when they study consumers who received a direct mail solicitation for a particular debt contract (line versus loan), they find evidence that the relative pricing variables are less relevant in explaining consumer contract choice, even though they were presented with a full menu of debt contracts. Thus, their results are consistent with the view that advertising is persuasive.
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