Everyone Believes in Redemption: Nudges and Overoptimism in Costly Task Completion
36 Pages Posted: 27 May 2012 Last revised: 15 Jul 2015
Date Written: September 2, 2014
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. The first two treatments reduced overoptimism by 7 and 8 percentage points respectively, but these effects were not significant. Only the third nudge had a significant effect and it reduced overoptimism by 26 percentage points. All three nudges increased redemption but had no statistically significant effect on beliefs. Our results suggest that weak cost-salience is an important mechanism for overoptimism.
Keywords: overoptimism, overconfidence, nudges, rebates, weak cost-salience
JEL Classification: D12, D14, D18
Suggested Citation: Suggested Citation