Methods
Theoretically, consumers’ search improves consumer
efficiency. In this paper, payoffs to search are explored
in a variety of ways. First, a variation of Cude’s (1987)
potential payoff to search measure, percent APR search
payoff, is calculated. This reflects the range of interest
rates available in the marketplace. For current credit
holders, payoffs to search consist of the potential gains
from substituting a new, lower price for a current higher
price. In this case, the “best choice” is the credit card
with the lowest APR, and the “worst choice” is to
continue to use the current credit card. Mathematically,
Percent APR = Current APR – Lowest APR × 100
Search Payoff The Lowest APR
It should be noted that credit card price also involves
26 ©1999, Association for Financial Counseling and Planning Education All rights of reproduction in any form reserved.
other elements, including annual fees, fees for cash
advances, rebates, minimum finance charges, over the
limit fees, and late payment charges. In addition, the
length of the interest free grace period, if any, and the
type of billing cycle can be important. Information on
these features was not available to include in the analysis;
however it is likely that APR is one of the primary search
characteristics for revolvers