Everyone Believes in Redemption: Nudges and Overoptimism in Costly Task Completion

Abstract:     

We elicit subjects' beliefs about the likelihood that they will redeem a mail-in form. Expected redemption rates exceed actual redemption rates by 49 percentage points, meaning that subjects are overoptimistic about their likelihood of redemption. We test the impact of three "nudges" on overoptimism: (1) informing subjects about a previous cohort's redemption rates, (2) reminding subjects about the redemption deadline, and (3) reducing transaction costs. Only the third nudge had any effect and it reduced overoptimism by one half. The third nudge increased redemption but had no effect on beliefs suggesting that weak cost-salience is the mechanism for overoptimism.

Number of Pages in PDF File: 36

Keywords: rebates, overoptimism, overconfidence, nudges, cost salience, prospective memory, present bias

working papers series