Price Attractiveness and Price Complexity: Why People Prefer Level-Payment Loans.

ABSTRACT: The improving sequence effect suggests that in choices between a rising earning and any other sequences, participants prefer the rising earning. Recent studies show that the improving sequence effect also exists in a loan context. As consumers have a strong preference for falling loan profiles, banks may consider to offer loans in which the loan repayments concentrate at the beginning of the loan term. In this paper, we examined the improving sequence effect in context of a car loan with three repayment plans expressed in temporally reframed prices (TRP). By regressing the evaluation of loan profiles on the perceived price attractiveness, price complexity, TRP and the interaction terms, we find that (1) the perceived price attractiveness and price complexity significantly predict the loan evaluation, and they also explain a significant proportion of variance in loan evaluation; (2) the TRP effect interacts with the improving sequence effect. Specifically, with the introduction of TRP, respondents prefer constant profiles over falling profiles. TRP may explain why level-payment loans are still popular in real world, though the improving sequence effect suggests otherwise.

SUBMITTER: Lu Y 

PROVIDER: S-EPMC8222506 | biostudies-literature | 2021

REPOSITORIES: biostudies-literature