Question:
Consider the numbers provided in Application 4 on South African consumer loans. Suppose a lender initially charges an interest rate of 10 percent and uses male models in its advertisements.
The firm wants to increase its uptake rate among male consumers. Suppose the firm switches to female models in its advertisements. The male uptake rate will increase by (1, 3, 8, 25) percent.
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 Karian, 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.