Author's School

Marketing

Author's School

Olin Business School

Language

English (en)

Date of Award

5-9-2024

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Chair and Committee

Raphael Thomadsen

Committee Members

na

Abstract

This dissertation consists of three chapters that attempt to understand the effects of both advertising quantity and content within the consumer finance and political domains. In the first chapter, I examine the effectiveness of TV advertising in promoting mortgage refinancing. It is well-documented that many mortgage borrowers make sub-optimal financial decisions by failing to refinance when interest rates are low, despite large potential savings. This paper studies the effectiveness of TV advertising on mortgage refinancing decisions. Using six years of mortgage origination and advertising data, I quantify the impact of TV advertising on consumers’ decisions to refinance their mortgages, as well as their choice of lenders. I find that TV advertising significantly increases the category-level demand for refinancing (i.e., market expansion effect) and influences the choice of lenders (i.e., business stealing effect). Interestingly, advertising can also benefit competing lenders through the market expansion effect. Beyond the analysis of ad quantity, I investigate the heterogeneous effects of ad content by leveraging zero-shot classification with a pre-trained large language model. I find that ads that highlight low mortgage rates and potential savings are the most effective in increasing both the category and brand-level demand. For policymakers and mortgage lenders, these findings suggest that advertising can be an effective tool to promote refinancing activities and offer practical guidance for designing advertising content. In the second chapter, I examine the impact of racial minority representation on advertising effectiveness. I do this by first assembling data on 10 million mortgage refinance loans, along with data on TV ads for mortgage refinance. I construct a measure of minority representation from video ads using computer vision techniques, and extract additional video and transcript features from the advertisements using a variational autoencoder and a text embedding model. I then apply a Double Machine Learning model to estimate how the minority representation in ads affects which lender consumers choose for their refinancing, while controlling for high-dimensional image and text features, as well as a rich set of fixed effects. I find that ads with higher minority representation are more effective in driving consumer choices: as the minority share in ads increases from 15% to 25%, the advertising elasticity increases from 0.037 to 0.042 (a relative increase of 14%). This effect is more pronounced among minority borrowers but is also positive among White borrowers. Across the political spectrum, minority representation has a larger impact among liberal-leaning consumers. In addition to the observational study, I conduct a pre-registered lab experiment (N = 2, 796) where I manipulate the race of the actors using generative AI technology. The results are consistent with those from the observational study, providing further causal evidence. I discuss potential mechanisms driving these results, as well as the implications of the findings. In the third chapter, I explore the relationship between the content of political advertising on television and ad effectiveness. Specifically, I investigate how slant – the extremeness of the message – and consistency with the candidate’s primary campaign messaging in national ad buys relate to two measures of voter behavior: online word-of-mouth (WOM) and voter preference (captured through daily polls) for the candidates. Using data from the 2016 presidential election, I find that ad messages that are more (1) centrist and (2) consistent with a candidate’s primary-election platform associate with increases in online WOM and voter preference for the candidate. I further find that consistency is more important in the early (pre-October) stages of the campaign. These results suggest that while there may be a benefit to candidates moderating their message after winning the primary election, they need to be careful about shedding their messaging from the primary election during the early stages of the general election. Additionally, these results enrich our understanding of the use of extreme messaging in political advertising, a phenomenon that is on the rise, by showing that it may have a cost of decreased candidate-related WOM and voter preference for the candidate.

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