The Hidden Costs of Nudging: Experimental Evidence from Reminders in Fundraising

Abstract

We document the hidden costs of a popular nudge and show how these costs distort policy making when neglected. In a field experiment with a charity, we find reminders increasing intended behavior (donations), but also increasing avoidance behavior (unsubscriptions from the mailing list). We develop a dynamic model of donation and unsubscription behavior with limited attention. We test the model in a second field experiment. The model is estimated structurally to perform a welfare analysis. Not accounting for hidden costs overstates the welfare effects for donors by factor ten and hides potential negative welfare effects of the charity.

Keywords: Avoiding-the-ask, charitable giving, field experiment, inattention, nudge, reminders

JEL Classification: C93, D03, D64, H41