Working Paper: NBER ID: w16887
Authors: Erin Todd Bronchetti; Thomas S. Dee; David B. Huffman; Ellen Magenheim
Abstract: 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.
Keywords: defaults; savings; low-income tax filers; field experiment
JEL Codes: C93; D03; D1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strong pre-existing intentions of tax filers (H31) | savings behavior (D14) |
| decision-making costs associated with deviating from pre-existing intentions (D91) | effectiveness of default (G33) |
| default treatment (automatic allocation of tax refunds to savings bonds) (H20) | savings behavior (D14) |
| default treatment (automatic allocation of tax refunds to savings bonds) (H20) | bond purchases (H74) |