I'm an Assistant Professor of Finance at the University of Houston.  My research is on Household Finance  with a focus on how psychological biases in consumer behavior affect outcomes in  financial markets. 

Email: pcmedina@uh.edu

Published and Accepted Articles

Does Saving Cause Borrowing? Implications for the Co-Holding Puzzle With Michaela Pagel  Forthcoming at The Journal of Finance

Refinancing Inequality During the COVID-19 Pandemic With S. Agarwal, S. Chomsisengphet, H. Kiefer and L. Kiefer Journal of Financial and Quantitative Analysis, 2024;59(5):2133-2163.

The Hidden Role of Contract Terms: The Case of Credit Card Minimum Payments in Mexico. With J. Negrin.   Management Science, 2022 May; 68(5):3856-77.

Side Effects of Nudging: Evidence from a Randomized Intervention in the Credit Card Market  The Review of Financial Studies, Volume 34, Issue 5, May 2021, Pages 2580–2607

Working Papers

Fintech Lending to Borrowers with No Credit History With Laura Chioda, Paul Gertler and Sean Higgins (R&R Journal of Financial Economics)

Despite the promise of FinTech lending to expand access to credit to populations without a formal credit history, FinTech lenders primarily lend to applicants with a formal credit history and rely on conventional credit bureau scores as an input to their algorithms. Using data from a large FinTech lender in Mexico, we show that alternative data from digital transactions through a delivery app are effective at predicting creditworthiness for borrowers with no credit history. Using account-by-month level data on revenues and costs, a machine learning model predicting profitability generates less profits than a model predicting default.

What Matters for Consumer Credit Choice? Evidence from the Philippine Digital Credit Market With Michael King, Benjamin Radoc and Roland Umanan.

Using an online discrete choice experiment with digital credit users in the Philippines, we study the impact of disclosures about price and non-price product attributes on consumer choice. Compared to when information is displayed as in traditional marketing campaigns, standardizing contract terms across products leads consumers to choose digital loans with lower interest rates and higher probability of approval at the expense of longer time to disburse and higher documentation requirements. Presenting interest rates in effective (compounded) or nominal terms makes no difference but, ranking by an attribute leads to the choice of products that are more favorable on that attribute. Finally, while on average, consumers are responsive to disclosures about late payment fees, overconfident consumers are not. We argue that overconfidence limits the effectiveness of attention-based interventions focused on contingent fees and, in the presence of asymmetric information, reduces the amount of information consumers reveal through their choices about their risk profiles.

Information, Cash or In-kind? Evidence from a Large Field Experiment to Encourage Debit Card Use With Chuck Howard, Michael King and Roland Umanan.

We conduct a large field experiment in Mexico to understand the relative effectiveness of cash and in-kind incentives, and informational interventions, designed to encourage debit card use. Larger effects are found with increased monetary value of the incentive whether it is cash or in-kind, and the longer the incentive is active for. However, higher value incentives do not necessarily come with better cost-benefit ratios. The best performing informational treatment performs equally as well as the 300 MXN cashback for amount of transactions and is not statistically different from all except the largest cash incentive for number of transactions. The exact wording of the informational message matters as we find no effects for alternative informational treatments. The modest average treatment effects mask significant heterogeneity in treatment effects, suggesting targeted marketing campaigns will be more cost effective. Using machine learning methods for causal inference, we find that the top quartile exhibits higher positive treatment effects, while the other quartiles have treatment effects that are either not statistically different from zero or negative. Finally, for customers in the top quartile of predicted treatment effects we find no evidence of either an increase or a decrease in total spending.

When Nudges Spill Over: Student Loan Borrowing under the CARD Act  With Alex Brown and Daniel Grodzicki (R&R Management Science)

Title 3 of the Credit Card Accountability, Responsibility, and Disclosure Act (2009) limited the marketing and sale of credit cards to college students, nudging them away from these high-rate products. While reducing card use, we find the nudge also prompted an 8.4\% rise student loan debt, 15\% among the less affluent. To assess the benefits of this substitution, we design a survey that reveals significant sub-optimal financial decision-making among students tied to higher card debt. We provide model-based evidence showing this implies the policy raised welfare. We also document higher grade-point averages and on-time graduation rates resulting from the policy.

The Effect of Stock Ownership on Individual Spending and Loyalty  with Vrinda Mittal and Michaela Pagel (R&R Management Science)

In this study, we quantify the effects of receiving stocks from certain brands on spending in the brand’s stores. We use data from a new FinTech app, Bumped, that opens a brokerage account for its users and rewards them with stocks when they shop at previously elected stores. For identification, we use the staggered distribution of Bumped accounts over time after individuals sign up for a waitlist. We find that individuals spend 40% more per week at elected brands and stores after being allocated a Bumped account. Additionally, Bumped granted some of the users with stocks from several companies as part of a promotional program. In response to the stock grants, individuals increase their weekly spending by 100% at the granted brands. We also find that users transfer more funds into their other brokerage after their Bumped accounts were opened. Beyond  documenting a causal link between stock ownership and individual spending and investments, we show that weekly spending in certain brands of our users is strongly correlated with stock holdings of that brand by Robinhood brokerage clients.

Work in progress 

Overoptimism and Contract Design: Evidence from a Field Experiment in the Payday Loan Market. With Michael Boutros and Barry Scholnick

Unpacking a Debt Puzzle: Psychological Drivers of Low Sensitivity to Interest Rates in the Credit Card Market. With Antonio Gargano.

Short notes (Archived)

Learning and Endogenous Limitations of Exploitation in Dynamic Contracts: A brief note.

In this brief note, I consider the problem of a profit maximizing firm facing a time inconsistent and partially naive consumer who learns about her own preferences over time. Under certain conditions on the structure of consumers beliefs, a profit maximizing firm will distort his contract offer forgoing profits today to hamper consumer learning, and ultimately increase the naivete remaining the next period. Compared to the static scenario without learning, the resulting contract is initially less exploitative for consumers, but this feature turns out to be only temporary since in the second period an exploitative contract replaces the full commitment device a monopolist would offer otherwise in the last period. The results are tailored to be interpreted in the context of credit markets based on the setting introduced by Heiduhes and Koszegi (2010).