Are People Aware of Their Inattention ? Evidence from Credit Card Repayment *

Early repayment of credit card bills is a major and suboptimal choice that has been largely ignored in the literature. Our study analyzes the distribution of the credit card repayment dates from a large commercial bank in Asia, and we find that 70% of consumers pay credit card bills in advance. We explain this finding by identifying two types of inattentive agents: sophisticated inattentive agents who are aware of their inattention problems and thus choose to pay in advance, and naïve inattentive agents who are unaware of the problem and thus, often make late repayments. We show that a temporary increase in attention level leads to earlier repayments. The early repayments are sophisticated choices affected by revolving interest, investment return, and amount payable rather than random mistakes. Learning also leads to earlier repayments and switching to automatic payment.