
The Fiendish Genius of Credit-Card Minimum Payments - bd
http://freakonomics.blogs.nytimes.com/2008/12/17/the-fiendish-genius-of-credit-card-minimum-payments/
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bd
Also some interesting comments here:

 _"The card industry has been very quick to internalize the insights of
behavioral finance and apply them to maximize profit by exploiting consumers'
cognitive biases. There's probably no other industry that knows as much about
consumer behavior, and they are constantly learning more..."_

[http://www.portfolio.com/views/blogs/market-
movers/2008/12/1...](http://www.portfolio.com/views/blogs/market-
movers/2008/12/17/adam-levitin-on-credit-card-minimum-payments)

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mdasen
Part of the problem is that people don't do business with a company because of
the intangibles. Even in technology, people look for things that can appear in
lists or price.

We really need a better way to measure the intangibles of businesses we work
with, how we're going to be treated, etc.

~~~
petercooper
I agree in a general sense, but do you think it's worth measuring how we're
"treated" in terms psychological devices such as minimum payments? (since this
is what the story is related to)

I don't see these psychological devices as nefarious at all. Some stores use
scents or music to encourage sales, some use layouts, displays, or loss
leaders to persuade people to buy things.

Sadly, the word "fiendish" in the title is a real misnomer. Is the 99 cents
(rather than pricing at dollar amounts) device "fiendish"? Sounds like people
are just looking for scapegoats in a crisis.

~~~
GHFigs
Whether "fiendish" is the right word for it or not, I think there is an
important distinction to be made between the use of such tactics by retailers
vs. creditors.

While a store is limited in it's ability to extract money (i.e. time, labor)
from a person by the contents of their wallet, a lender is only limited by the
length of a person's lifespan.

~~~
petercooper
You could twist it round though.. people wouldn't use as much credit if it
were not for the tactics used in retail ;-)

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sokoloff
I can almost guarantee that if a card issuer were to unilaterally (not by
force of regulation, or by industry-wide standard practice) raise the minimum
payment formula to something that I would find rational (3-5 year payoff
period perhaps), that there would be an immediate hue and cry about how
damaging that action was to disenfranchised borrowers, as some people were
"just getting by" before and now they're going to be in debt trouble by virtue
of this action. (Newsflash, they only _appeared to be_ getting by before and
they were _already_ deep in debt trouble, but that's not how it would be
reported and complained about.)

Though I'm of the opinion "let adults make adult decisions for themselves,
don't have government be a nanny", here even I can see a reason to regulate
(whether by government, or ideally by an organization like PCI) minimum
payments higher than a 30 year amortization schedule.

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aneesh
This is far more pervasive that just minimum payments. Behavioral economics
research has shown the power of defaults -- make a group or policy opt-out
instead of opt-in and you'll get a lot more people to join it, even though the
two situations are technically identical. Seems to be the same psychological
principle at work here.

~~~
jwesley
I think that's just the result of people not closely examining the page and
leaving a box checked, vs. deliberately checking it. Requiring users to do
anything will almost always have a lower conversion rate than requiring them
to do nothing.

