Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203275
Authors: 
Kosfeld, Michael
Schüwer, Ulrich
Year of Publication: 
2016
Series/Report no.: 
SAFE Working Paper 47
Abstract: 
We analyze the consequences of consumer education on prices and welfare in retail financial markets when some consumers are naive about shrouded add-on prices and banks try to exploit this. Allowing for different information and pricing strategies we show that education is unlikely to push banks to full price disclosure, which would be efficient, but instead to a new equilibrium in which banks discriminate between consumer types. Welfare analysis reveals that education, while positive for consumers who learn to make better financial decisions, imposes a negative externality on other consumers when banks respond by setting higher prices. Overall, the welfare effects of consumer education can be negative. Our results identify important pitfalls policy makers should take into account when considering the seemingly harmless intervention of consumer education.
Subjects: 
Consumer education
financial literacy
pricing strategies
bounded rationality
welfare effects
JEL: 
D40
D80
L50
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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