Abstract: Unexpected intercollegiate athletic success generates a variety of changes at universities -- including increased salience and status of sports-oriented activities among students, known colloquially as the “Cinderella effect". By linking data on athletic contest outcomes, betting lines, student debt default rates, and post-college earnings data, we find that Cinderella events disrupt human capital development among incumbent students and adversely affect their financial outcomes. Following such events, treated students exhibit higher default rates and lower earnings. This effect strengthens with treatment exposure (results are larger for freshmen than seniors) and is concentrated in low-ranked universities. These institutions show no changes in revenues or expenditures, suggesting that resource-driven explanations are unlikely to be the primary driver. In contrast, students at high-ranked universities have marginally lower default rates and higher earnings, as these schools receive more applications, increase selectivity, and have marginally higher revenues and expenditures. Overall, our results suggest that athletic success shifts students' preferences away from academic focus. More broadly, our results show that university environment affects human capital development, as distinct from selection effects that reflect assortive matching between students and universities.
Discussant: Alvaro Mezza, Federal Reserve Board of Governors
Abstract: Chapter 7 personal bankruptcy provides remarkably generous debt relief. Why do so few consumers file for bankruptcy? Surveying high-debt individuals, we show that their top concerns about bankruptcy are factually inaccurate: they dramatically underestimate the generosity of Chapter 7 and overestimate credit score consequences. In a randomized controlled trial, we correct bankruptcy misperceptions for randomly selected high-debt individuals. The effects of our information provision treatment persist for months, causing study participants to take action toward filing for bankruptcy. Thus, bankruptcy misperceptions deter filings. This finding implies that marginal filers--whose mistaken beliefs make them indifferent between filing or not--should realize a substantial net financial benefit from filing. In a separate natural experiment, we confirm this implication. Using novel data on prospective filers, we show that the marginal filer increases net worth by $46,971. Finally, in a stylized model, we show that fixing misperceptions can improve social welfare, without credit market consequences, by improving debt relief allocation.
Discussant: Liu Ee Chia, National University of Singapore
Abstract: This paper examines how misleading advertising of borrowing costs affects consumer choices in the high-interest, short-term loan market. We assemble a comprehensive dataset on online cash-advance apps that combines detailed advertising content, app downloads and usage, and actual and consumer-perceived borrowing costs. We first document that many high-cost apps increasingly advertise "no interest" claims over time, despite their misleading nature. We then show that these "no interest" claims make advertising nine times more effective in driving existing app users' continued app usage. To further explore the underlying mechanism, we conduct a pre-registered survey experiment and find that such claims lead a substantial fraction of respondents to mistakenly believe the loans are costless, especially those with prior usage experience. These findings suggest that "no interest" claims distort consumer borrowing decisions and cause harm, directly informing the ongoing policy debate on strengthening regulation in this fast-growing market.
Discussant: Raluca Roman, Federal Reserve Bank of Philadelphia
Abstract: The intergenerational transfer of credit histories through authorized user (AU) status affects credit outcomes. About 16% of young adults benefit from AU status each year, gaining credit histories that pre-date their own financial activity. Using variation in the age at which individuals are added as AUs, we identify substantial gains to AU status: credit scores rise by 22-42 points, and access to credit cards and credit in broader markets increases. However, AU borrowers are more likely to default than others with similar credit scores, suggesting that AU histories inflate scores and reinforce inequality in credit access.
Discussant: Arkodipta Sarkar, National University of Singapore
