STUDY | 
Finance
 BEHAVIOR CHANGE

Everyone Believes in Redemption

Letzler & Tasoff (2013)
Summary by 
Mark Egan

The authors 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. The authors conduct three treatments to reduce overoptimism; (1) informing subjects about a previous cohort's redemption rates, (2) reminding subjects about the redemption deadline and (3) reducing transaction costs (i.e. making it easier). Only the third nudge had any effect and it reduced overoptimism by one half. The third nudge increased redemption but had no effect on beliefs suggesting that weak cost-salience is the mechanism for overoptimism.