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

36 Pages Posted: 27 May 2012 Last revised: 15 Jul 2015

Robert Letzler

Independent

Joshua Tasoff

Claremont Colleges - Claremont Graduate University

Date Written: September 2, 2014

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. 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

Letzler, Robert and Tasoff, Joshua, Everyone Believes in Redemption: Nudges and Overoptimism in Costly Task Completion (September 2, 2014). Available at SSRN: https://ssrn.com/abstract=2066930 or http://dx.doi.org/10.2139/ssrn.2066930

Robert Letzler

Independent ( email )

No Address Available

Joshua Tasoff (Contact Author)

Claremont Colleges - Claremont Graduate University ( email )

150 E. Tenth Street
Claremont, CA 91711
United States

HOME PAGE: http://sites.cgu.edu/tasoffj/

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