Research Handbook on Behavioral Law and Economics
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Research Handbook on Behavioral Law and Economics

Edited by Joshua C. Teitelbaum and Kathryn Zeiler

The field of behavioral economics has contributed greatly to our understanding of human decision making by refining neoclassical assumptions and developing models that account for psychological, cognitive, and emotional forces. The field’s insights have important implications for law. This Research Handbook offers a variety of perspectives from renowned experts on a wide-ranging set of topics including punishment, finance, tort law, happiness, and the application of experimental literatures to law. It also includes analyses of conceptual foundations, cautions, limitations and proposals for ways forward.
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Chapter 5: The effect of advertising on home equity credit choices

Sumit Agarwal and Brent W. Ambrose

Abstract

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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