Consumer Inattention, Disclosures, and the Refinancing Channel

Despite mandatory disclosures of attractive refinancing opportunities, under-refinancing costs mortgage holders in many countries a significant fraction of income annually. To address the role of consumer inattention in explaining sluggish refinancing, we partner with a large Irish bank to analyze a field experiment testing disclosure designs sent to 12,000 households. While we find only small effects of disclosure design improvements, a simple reminder letter increases refinancing by 80%, from 9% to 16%. To interpret this reminder effect, we extend and estimate a mixture model of inattentive financial decision-making to allow for disclosure treatment effects. We find that a reminder decreases the likelihood mortgage holders are inattentive by 15 percentage points from 76% to 61%. A back-of-the-envelope calculation implies that each reminder letter generated an average of e51 of consumption (average of e722 for refinancing households). Our results suggest that reminders could have larger effects on household refinancing than a 200 bp rate cut and that reminders could strengthen the refinancing channel and stimulate local consumption even when policy rates are at the zero-lower bound or set in a monetary union. JEL Codes: D83, E58, G21, G28, G51, M38