Economics

We use a laboratory experiment to study preferences over false-positive and false-negative rates of warning signals for an adverse event with a known prior. We find that subjects decrease their demand with signal quality, but less than predicted by our theory. There is asymmetric under-responsiveness by prior: for a low (high) prior, their willingness-to-pay does not fully adjust for the increase in the false-positive (false-negative) costs. We show that neither risk preference nor Bayesian updating skills can fully explain our results. Our results are most consistent with a decision-making heuristic in which subjects do not distinguish between false-positive and false-negative errors.

In this study, we examine policy changes from large U.S. banks between 2017 and 2022, which eliminated non-sufficient funds (NSF) fees and relaxed overdraft policies. Using individual transaction-level data, we find that the elimination of NSF fees, not surprisingly, resulted in immediate reductions in NSF charges across the income distribution. However, relaxing overdraft policies resulted in reductions in overdraft fees only for wealthier households, along the dimensions of income and liquidity, and only those enjoyed subsequent declines in late fees, interest payments, account maintenance fees, and the use of alternative financial services, such as payday loans. Our results thus suggest t..