When a Nudge Isn't Enough: Defaults and Saving Among Low-Income Tax Filers / Erin Todd Bronchetti, Thomas S. Dee, David B. Huffman, Ellen Magenheim.

Format:

Book

Author/Creator:

Bronchetti, Erin Todd.

Contributor:

National Bureau of Economic Research.

Dee, Thomas S.

Huffman, David B.

Magenheim, Ellen.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16887.

NBER working paper series no. w16887

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

Recent evidence suggests that the default options implicit in economic choices (e.g., 401(k) savings by white-collar workers) have extraordinarily large effects on decision-making. This study presents a field experiment that evaluates the effect of defaults on savings among a highly policy-relevant population: low-income tax filers. In the control condition, tax filers could choose (i.e., opt in) to receive some of their federal tax refund in the form of U.S. Savings Bonds. In the treatment condition, a fraction of the tax refund was automatically directed to U.S. Savings Bonds unless tax filers actively chose another allocation. We find that the opt-out default had no impact on savings behavior. Furthermore, our treatment estimate is sufficiently precise to reject effects as small as one-fifth of the participation effects found in the 401(k) literature. Ancillary evidence suggests that this "nudge" was ineffective in part because the low-income tax filers in our study had targeted plans to spend their refunds. These results suggest that choice architecture based on defaults may be less effective in certain policy-relevant settings, particularly where intentions are strong.

Notes:

Print version record

March 2011.