Arrows up or down. In the application on consumer loans in South Africa, the loan uptake rate as the interest rate decreased and when the model on the offer was switched from a man to a woman.

Transcribed Image Text:

Application 4 PICTURE OF MAN VERSUS PICTURE OF WOMAN APPLYING THE CONCEPT #4: How does advertising affect consumer choices? A South African consumer lender decided to use a mass mailing of 53,000 loan offers to test the sensitivity of con- sumers to variations in interest rates and other features of loan offers. The interest rates in the offer letters ranged from 3.75% to 11.75% per month. As expected, the uptake rate (the number of consumers who accepted a particular loan offer) was higher for offer letters with low interest rates. The elasticity of the uptake rate with respect to the interest rate was -0.34: a 10% decrease in the interest rate (from, say, an interest rate of 7.0% to 6.3%) increased the uptake rate by 3.4%. More surprising was the finding that the uptake rate among men was much higher when the offer letter included a picture of a woman rather than a picture of a man. Replacing a male model with a female model was equivalent to cutting the interest rate by 25 percent, for example, from 7.0 percent to 5.25 percent. In contrast, the uptake rate for women consum- ers was unaffected by the gender of the model. Related to Exercises 4.4 and 4.5. SOURCE: Based on Marianne Bertrand, Dean Karlan, Sendhil Mullainathan, Eddar Shafir, and Jonathan Zinman, "What's Advertising Content Worth?: Evidence from a Consumer Credit Marketing Field Experiment," Quarterly Journal of Economics 125 (2010), pp. 263-306.