IDEAS home Printed from https://ideas.repec.org/p/hhs/gunwpe/0650.html
   My bibliography  Save this paper

The hidden costs of nudging: Experimental evidence from reminders in fundraising

Author

Listed:
  • Trier Damgaard, Mette

    (Aarhus University)

  • Gravert, Christina

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

We document the hidden costs of one of the most policy-relevant nudges, reminders. Sending reminders, while proven effective in facilitating behavior change, may come at a cost for both senders and receivers. Using a large scale field experiment with a charity, we find that reminders increase donations, but they also substantially increase unsubscriptions from the mailing list. To understand this novel finding, we develop a dynamic model of donation and unsubscription behavior with limited attention which is tested in reduced-form using a second field experiment. We also estimate our model structurally to perform a welfare analysis, showing that reminders are welfare diminishing for the potential donors as non-givers incur a welfare loss of $2.35 for every reminder. The net benefit of every reminder to the charity is $0.18. Our evaluation shows the need to evaluate nudges on their intended as well as unintended consequences.

Suggested Citation

  • Trier Damgaard, Mette & Gravert, Christina, 2016. "The hidden costs of nudging: Experimental evidence from reminders in fundraising," Working Papers in Economics 650, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0650
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/2077/42370
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. John List & Azeem Shaikh & Yang Xu, 2016. "Multiple Hypothesis Testing in Experimental Economics," Artefactual Field Experiments 00402, The Field Experiments Website.
    2. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    3. Stefano DellaVigna & John A. List & Ulrike Malmendier, 2012. "Testing for Altruism and Social Pressure in Charitable Giving," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 1-56.
    4. Gilbert, Ben & Graff Zivin, Joshua, 2014. "Dynamic salience with intermittent billing: Evidence from smart electricity meters," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 176-190.
    5. Duncan I. Simester & Peng Sun & John N. Tsitsiklis, 2006. "Dynamic Catalog Mailing Policies," Management Science, INFORMS, vol. 52(5), pages 683-696, May.
    6. Huck Steffen & Rasul Imran, 2010. "Transactions Costs in Charitable Giving: Evidence from Two Field Experiments," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-35, April.
    7. repec:ucp:jpolec:doi:10.1086/691703 is not listed on IDEAS
    8. Dean Karlan & Margaret McConnell & Sendhil Mullainathan & Jonathan Zinman, 2016. "Getting to the Top of Mind: How Reminders Increase Saving," Management Science, INFORMS, vol. 62(12), pages 3393-3411, December.
    9. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    10. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
    11. Hannah Trachtman & Andrew Steinkruger & Mackenzie Wood & Adam Wooster & James Andreoni & James J. Murphy & Justin M. Rao, 2014. "Fair Weather Avoidance: Unpacking Costs and Benefits in Replication of 'Avoiding the Ask'," NBER Working Papers 20385, National Bureau of Economic Research, Inc.
    12. Tasoff, Joshua & Letzler, Robert, 2014. "Everyone believes in redemption: Nudges and overoptimism in costly task completion," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 107-122.
    13. Jeremy Tobacman & David Laibson, 2007. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Economics Series Working Papers 341, University of Oxford, Department of Economics.
    14. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
    15. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2009. "Optimal Defaults and Active Decisions," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1639-1674.
    16. James Andreoni & Justin M. Rao & Hannah Trachtman, 2011. "Avoiding The Ask: A Field Experiment on Altruism, Empathy, and Charitable Giving," NBER Working Papers 17648, National Bureau of Economic Research, Inc.
    17. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    18. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    19. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
    20. Altmann, Steffen & Traxler, Christian, 2014. "Nudges at the dentist," European Economic Review, Elsevier, vol. 72(C), pages 19-38.
    21. Knutsson, Mikael & Martinsson, Peter & Wollbrant, Conny, 2012. "Do people avoid opportunities to donate? A natural field experiment on recycling and charitable giving," Working Papers in Economics 542, University of Gothenburg, Department of Economics.
    22. Keith M. Marzilli Ericson, 2011. "Forgetting We Forget: Overconfidence And Memory," Journal of the European Economic Association, European Economic Association, vol. 9(1), pages 43-60, February.
    23. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
    24. Anderson, Michael L., 2008. "Multiple Inference and Gender Differences in the Effects of Early Intervention: A Reevaluation of the Abecedarian, Perry Preschool, and Early Training Projects," Journal of the American Statistical Association, American Statistical Association, vol. 103(484), pages 1481-1495.
    25. Saurabh Bhargava & Dayanand Manoli, 2015. "Psychological Frictions and the Incomplete Take-Up of Social Benefits: Evidence from an IRS Field Experiment," American Economic Review, American Economic Association, vol. 105(11), pages 3489-3529, November.
    26. repec:eee:pubeco:v:157:y:2018:i:c:p:27-40 is not listed on IDEAS
    27. Füsun F. Gönül & Frenkel Ter Hofstede, 2006. "How to Compute Optimal Catalog Mailing Decisions," Marketing Science, INFORMS, vol. 25(1), pages 65-74, 01-02.
    28. Michael Conlin & Ted O'Donoghue & Timothy J. Vogelsang, 2007. "Projection Bias in Catalog Orders," American Economic Review, American Economic Association, vol. 97(4), pages 1217-1249, September.
    29. Füsun Gönül & Meng Ze Shi, 1998. "Optimal Mailing of Catalogs: A New Methodology Using Estimable Structural Dynamic Programming Models," Management Science, INFORMS, vol. 44(9), pages 1249-1262, September.
    30. David Card & Stefano DellaVigna & Ulrike Malmendier, 2011. "The Role of Theory in Field Experiments," Journal of Economic Perspectives, American Economic Association, vol. 25(3), pages 39-62, Summer.
    31. Mette Trier Damgaard & Christina Gravert, 2014. "Now or never! The effect of deadlines on charitable giving: Evidence from a natural field experiment," Economics Working Papers 2014-03, Department of Economics and Business Economics, Aarhus University.
    32. David Laibson & Andrea Repetto & Jeremy Tobacman, 2005. "Estimating Discount Functions with Consumption Choices over the Lifecycle," Levine's Bibliography 784828000000000643, UCLA Department of Economics.
    33. Jay Bhattacharya & Alan M. Garber & Jeremy D. Goldhaber-Fiebert, 2015. "Nudges in Exercise Commitment Contracts: A Randomized Trial," NBER Working Papers 21406, National Bureau of Economic Research, Inc.
    34. Peter Carr & Robert Jarrow & Ravi Myneni, 2008. "Alternative Characterizations Of American Put Options," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 5, pages 85-103 World Scientific Publishing Co. Pte. Ltd..
    35. Hunt Allcott & Judd B. Kessler, 2015. "The Welfare Effects of Nudges: A Case Study of Energy Use Social Comparisons," NBER Working Papers 21671, National Bureau of Economic Research, Inc.
    36. Hunt Allcott & Todd Rogers, 2014. "The Short-Run and Long-Run Effects of Behavioral Interventions: Experimental Evidence from Energy Conservation," American Economic Review, American Economic Association, vol. 104(10), pages 3003-3037, October.
    37. Murooka, Takeshi & Schwarz, Marco A., 2018. "The timing of choice-enhancing policies," Journal of Public Economics, Elsevier, vol. 157(C), pages 27-40.
    38. B. Douglas Bernheim & Andrey Fradkin & Igor Popov, 2015. "The Welfare Economics of Default Options in 401(k) Plans," American Economic Review, American Economic Association, vol. 105(9), pages 2798-2837, September.
    39. Jason Dana & Roberto Weber & Jason Kuang, 2007. "Exploiting moral wiggle room: experiments demonstrating an illusory preference for fairness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(1), pages 67-80, October.
    40. Benjamin R. Handel, 2013. "Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts," American Economic Review, American Economic Association, vol. 103(7), pages 2643-2682, December.
    41. Sonntag, Axel & Zizzo, Daniel, 2015. "On Reminder Effects, Drop-Outs and Dominance: Evidence from an Online Experiment on Charitable Giving," MPRA Paper 68478, University Library of Munich, Germany, revised 14 Jul 2015.
    42. Damgaard, Mette Trier & Gravert, Christina, 2017. "Now or never! The effect of deadlines on charitable giving: Evidence from two natural field experiments," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 78-87.
    43. Glenn W. Harrison, 2014. "Cautionary notes on the use of field experiments to address policy issues," Oxford Review of Economic Policy, Oxford University Press, vol. 30(4), pages 753-763.
    44. repec:feb:framed:0087 is not listed on IDEAS
    45. S. D. Jacka, 1991. "Optimal Stopping and the American Put," Mathematical Finance, Wiley Blackwell, vol. 1(2), pages 1-14, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gary Bolton & Eugen Dimant & Ulrich Schmidt, 2018. "When a Nudge Backfires. Using Observation with Social and Economic Incentives to Promote Pro-Social Behavior," PPE Working Papers 0017, Philosophy, Politics and Economics, University of Pennsylvania.
    2. Cristina Bicchieri & Eugen Dimant, 2019. "Nudging with Care: The Risks and Benefits of Social Information," Discussion Papers 2019-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    3. Damgaard, Mette Trier & Gravert, Christina, 2017. "Now or never! The effect of deadlines on charitable giving: Evidence from two natural field experiments," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 78-87.
    4. repec:eee:ecoedu:v:64:y:2018:i:c:p:313-342 is not listed on IDEAS
    5. Damgaard, Mette Trier & Nielsen, Helena Skyt, 2018. "Nudging in education," Economics of Education Review, Elsevier, vol. 64(C), pages 313-342.
    6. Taylor, Rebecca, 2018. "A Mixed Bag: The Hidden Time Costs of Regulating Consumer Behavior," 2018 Annual Meeting, August 5-7, Washington, D.C. 274129, Agricultural and Applied Economics Association.
    7. Kesternich, Martin & Römer, Daniel & Flues, Florens, 2019. "The power of active choice: Field experimental evidence on repeated contribution decisions to a carbon offsetting program," European Economic Review, Elsevier, vol. 114(C), pages 76-91.
    8. Murooka, Takeshi & Schwarz, Marco A., 2018. "The timing of choice-enhancing policies," Journal of Public Economics, Elsevier, vol. 157(C), pages 27-40.
    9. Adena, Maja & Huck, Steffen, 2016. "Online fundraising, self-deception, and the long-term impact of ask avoidance," Discussion Papers, Research Unit: Economics of Change SP II 2016-306, WZB Berlin Social Science Center.
    10. Andor, Mark A. & Fels, Katja M. & Renz, Jan & Rzepka, Sylvi, 2018. "Do planning prompts increase educational success? Evidence from randomized controlled trials in MOOCs," Ruhr Economic Papers 790, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Muller, Paul & Habla, Wolfgang, 2018. "Experimental and non-experimental evidence on limited attention and present bias at the gym," Working Papers in Economics 743, University of Gothenburg, Department of Economics.
    12. Adena, Maja & Huck, Steffen, 2016. "Online fundraising, self-image, and the long-term impact of ask avoidance," Annual Conference 2016 (Augsburg): Demographic Change 145535, Verein für Socialpolitik / German Economic Association.
    13. repec:eee:joepsy:v:66:y:2018:i:c:p:45-63 is not listed on IDEAS
    14. Adena, Maja & Huck, Steffen, 2017. "Narrow framing in charitable giving: Results from a two-period field experiment," Discussion Papers, Research Unit: Economics of Change SP II 2017-305, WZB Berlin Social Science Center.
    15. Arno Apffelstaedt & Jana Freundt, 2018. "Corrupted Votes and Rule Compliance," PPE Working Papers 0018, Philosophy, Politics and Economics, University of Pennsylvania.
    16. Robert Dur & Dimitry Fleming & Marten van Garderen & Max van Lent, 2019. "A Social Norm Nudge to Save More: A Field Experiment at a Retail Bank," Tinbergen Institute Discussion Papers 19-063/I, Tinbergen Institute.
    17. Adena, Maja & Huck, Steffen, 2019. "Giving once, giving twice: A two-period field experiment on intertemporal crowding in charitable giving," Journal of Public Economics, Elsevier, vol. 172(C), pages 127-134.
    18. Maria De Paola & Francesca Gioia & Fabio Piluso, 2017. "Does Reminding Of Behavioural Biases Increase Returns From Financial Trading? A Field Experiment," Working Papers 201705, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
    19. Casarico, Alessandra & Tonin, Mirco, 2018. "Pay-What-You-Want to Support Independent Information: A Field Experiment on Motivation," IZA Discussion Papers 11366, Institute of Labor Economics (IZA).
    20. Castleman, Benjamin L. & Murphy, Francis X. & Patterson, Richard & Skimmyhorn, William L., 2019. "Active Choice Framing and Intergenerational Education Benefits: Evidence from the Field," IZA Discussion Papers 12523, Institute of Labor Economics (IZA).
    21. Altmann, Steffen & Grunewald, Andreas & Radbruch, Jonas, 2019. "Passive Choices and Cognitive Spillovers," IZA Discussion Papers 12337, Institute of Labor Economics (IZA).
    22. repec:eee:ecolet:v:171:y:2018:i:c:p:133-136 is not listed on IDEAS
    23. repec:eee:ecolec:v:148:y:2018:i:c:p:178-210 is not listed on IDEAS

    More about this item

    Keywords

    Avoiding-the-ask; charitable giving; field experiment; inattention; nudge; reminders.;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:gunwpe:0650. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie Andersson). General contact details of provider: http://edirc.repec.org/data/naiguse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.