NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Erin Todd Bronchetti, Thomas S. Dee, David B. Huffman, Ellen Magenheim

NBER Working Paper No. 16887
Issued in March 2011
NBER Program(s):   PE

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.

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Document Object Identifier (DOI): 10.3386/w16887

Published: “When a Nudge isn’t Enough: Defaults and Saving among Low - Income Tax Filers,” with Erin Bronchetti, David Huffman, and Ellen Magenheim, National Tax Journal 66(3), September 2013, 609 - 634.

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