Abstract
The terms associated with new financial products, such as buy now, pay later (BNPL) loans, are often cloudy. Policymakers are concerned because these products are marketed to naïve consumers who may be in financial peril. While financial illiteracy has received attention, it is also important to recognize that consumers are impacted by perceptions of the choices of those in their social network. We elicit empirical and normative expectations in an incentivized experiment to measure what young people think others will do and their beliefs of the beliefs of others. Our experimental participants are more likely to purchase an item with a BNPL loan, as compared to a credit card loan, and the majority believes others see this as a good choice. We conclude that consumers are likely to increase indebtedness when offered a payment scheme that is supported by a social norm.
Published Version
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