A group including Sendhil Mullainathan and Eldar Shafir conducted a particularly ambitious experiment in the fall of 2003. They got permission from a large consumer lender in South Africa to test a grab bag of psychological tricks in its junk-mail pitches for loans. The lender was offering the equivalent of American payday loans—short-term cash for the working poor, at loan shark rates.
The lender sent letters offering a special interest rate to 53,194 past customers. Among other factors, Mullainathan and Shafir’s team tested the effect of having a photograph in the mailing. They found stock photos of pleasant, smiling faces and put them in the lower right corner of the letter, near the signature. This implicitly suggested that the person depicted was a bank employee, maybe the one who had written the letter.
Half the photos were of men, and half were of women. Some recipients got a photo of someone of their own gender and some of the opposite gender. Since race affects everything in South African society, they tested that too. They used photos of blacks, whites, Indians, and mixed-race people.
An economist would say that a photograph should have no bearing on a reasonable person’s decision to take out a costly loan. An advertiser or a con artist would differ, insisting on the value of a pretty face or an ethnic shill. Mullainathan and Shafir were interested in putting an exact value on any effect the photos had. In order to do that, each letter offered a randomly assigned interest rate. In South Africa’s consumer loan business, it is customary to quote a monthly rate of simple (not compounded) interest. The tested rates ranged from 3.25 to 11.75 percent a month. For these customers, the 3.25 percent was a true bargain, less than half the company’s usual minimum. The 11.75 percent was the customary maximum rate offered to the least creditworthy borrowers.
As you’d expect, customers were more likely to take up low-interest offers than high ones. By tracking the response to specific letters, the researchers were able to tell which factors had motivated customers to apply for loans. They found that gender mattered and race didn’t. The gender effect was strictly a guy thing. At a given interest rate, male customers were much more likely to take out a loan when the letter had a female photo. For female customers, the photo didn’t matter.
There is such a tradition of selling with sex, of bikini models draped over the tractor-trailer, that you may get the wrong idea about this experiment. The photos were simply black-and-white headshots of businesslike young women. The men who received letters with these generic female photos were more likely to apply for loans than those who received a letter with a male photo or none at all. There was no meaningful difference in response rates between the male-photo and no-photo letters. That indicates it was the female gender that mattered and not simply “putting a human face on an impersonal corporation.”
Here’s the really incredible thing. Mullainathan and Shafir’s group calculated that adding a female photo to letters addressed to men generated the same volume of additional loan applications as lowering the interest rate 4.5 percentage points. That’s a difference of 4.5 percentage points a month. It would be 54 percent more a year.
“Why?” is the toughest question in psychology. South Africans are exposed to Calvin Klein ads, The Family Guy, and hard-core porn. It is safe to assume that the customers weren’t making a rationalization along the lines of “I’ll get to meet this hot babe, and that’ll be worth paying a killer interest rate.” They couldn’t have been conscious of basing financial decisions on the photos at all.
Whether to toss junk mail or read it is normally a split-second decision. One possible explanation is that men simply like pictures of women, and this caused a few more to read the letter rather than trash it. Pictures of men don’t have the same effect on women, or so it would seem.
Another hypothesis (not mutually exclusive) is that the photos primed automatic patterns of gender behavior. Men believe women to be weak bargainers (or act as if they do—this may all be unconscious). Putting a woman’s face next to a given interest rate identifies it as a good deal. It’s almost as if the woman is a human reference price, saying “This rate is cheaper than what you’d get from a man.” This doesn’t exhaust the possible psychosexual explanations. In many a social context and experiment, men are competitive with other men, less so with women. Seeing the woman’s picture may relax the usual anxiety about getting the best possible interest rate.
A little photo = massive incremental profits. There’s got to be a catch. Shafir’s group combed the data for evidence that something, anything, was not as it appeared. They wondered, for instance, whether it was possible that the customers who “fell” for the pictures were poorer credit risks. Their reaction to the photos could be symptomatic of bad financial decision making generally. This could erase any hoped-for extra profit.
The researchers found no statistical evidence that the customers susceptible to the female photos differed in income level, education, or payback rates of the loans taken out. On the contrary, the photos were more effective at raising profit than simply raising the interest rate. A loan company that charges a higher rate will have fewer customers, for one thing, and those customers paying the higher rate are normally more likely to default. The photos allowed the company to attract more customers at high rates without increasing the default risk. Such is the power of gender.