When a Nudge Isn't Enough: Defaults and Saving Among Low-Income Tax Filers

45 Pages Posted: 21 Mar 2011 Last revised: 24 Mar 2011

See all articles by Erin Todd Bronchetti

Erin Todd Bronchetti

Swarthmore College

Thomas S. Dee

Stanford University - School of Education; National Bureau of Economic Research (NBER)

David Huffman

IZA Institute of Labor Economics; Swarthmore College

Ellen Magenheim

Swarthmore College

Date Written: March 2011

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.

Suggested Citation

Bronchetti, Erin Todd and Dee, Thomas S. and Huffman, David and Magenheim, Ellen, When a Nudge Isn't Enough: Defaults and Saving Among Low-Income Tax Filers (March 2011). NBER Working Paper No. w16887, Available at SSRN: https://ssrn.com/abstract=1789468

Erin Todd Bronchetti (Contact Author)

Swarthmore College ( email )

500 College Avenue
Swarthmore, PA 19081
United States

Thomas S. Dee

Stanford University - School of Education ( email )

Stanford, CA 94305-3096
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Huffman

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Swarthmore College

500 College Ave
Swarthmore, PA 19081
United States

Ellen Magenheim

Swarthmore College ( email )

500 College Ave
Swarthmore, PA 19081
United States

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