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Research Details
Credit Solicitations as Market Experiments in the U.S. Credit Card Industry
Abstract
The case describes market experiments conducted by a major credit card issuer. In a typical experiment, the issuer sends out hundreds of thousands of solicitations based on information received from credit reporting agencies (e.g. credit score, past delinquencies, etc.). Selection bias is striking: the average risk profile of those responding to higher interest rates is significantly worse than that of respondents to lower rates. Tracking respondents for 27 months after the experiment, respondents to higher rates displayed significantly higher delinquency and bankruptcy rates. This short case is based on an excellent research paper by Larry Ausubel who obtained proprietary data on the condition of not revealing the name of the issuer. Contact Professor Al-Najjar for teaching methods, slides, and classroom exhibits.
Type
Case
Author(s)
Nabil Al-Najjar, David Besanko, Robert Uchoa
Date Published
01/01/2003
Citations
Al-Najjar, Nabil, David Besanko, and Robert Uchoa. Credit Solicitations as Market Experiments in the U.S. Credit Card Industry. Case 5-204-252 (KEL005).
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