We found a very precise zero effect

From H/T Paul Caron
From

The Limits Of Nudging: Why Can't California Get People To Take Free Money? by Greg Roaslasky.

The Earned Income Tax Credit supplements incomes through the tax code, awarding thousands of dollars each year primarily to low-wage workers with kids. But there's a problem: a huge population of eligible workers fails to file their taxes and get the money each year.

Several years ago, the state of California established their own state EITC (CalEITC) on top of the federal one. Depending on how many kids they have and how much they earn, a Californian who files for both the state and federal credit can get upwards of $6,000. For the poorest households with kids, those tax credits could almost double their household income. There's a lot of money on the table to help the most at-risk families in the state, and California policymakers have grown concerned about the large number of eligible workers failing to file taxes and claim their credits.

In 2018, the state of California and the California Policy Lab, an interdisciplinary think tank of scholars from various University of California schools, started trying to solve this problem, and they commissioned one of the most fascinating experiments in "nudging" we've seen in a while.

Nudges are simple, low-cost interventions aimed at gently guiding people to make better decisions. For example, making retirement plans the default option when you join a job, which has been shown to significantly increase the likelihood you save more for retirement. The California Policy Lab and its partners decided it would try and nudge workers to claim the EITC by sending them letters and text messages. The solution seemed like a no brainer: inform people how they can get free money, and they'll get that free money! If only it were that simple.

The researchers conducted field experiments for two years on over a million Californians. They randomly divided them into treatment groups, which received various types of messages, and a control group, which received no message. ...

"We found a very precise zero effect," says Elizabeth Linos, a behavioral scientist at UC Berkeley who was also behind the study. Many of those who received the messages, she says, did visit the website advertised in the messages to help them sign up for the EITC. But in the end, they didn't fill out the forms to receive their credit. They turned down free money. "We weren't able to increase the rate at which people file for taxes and we weren't able to increase the number of households that claim the EITC," Linos says.

This experiment might seem like a gigantic failure for behavioral economics and the theory of nudging. But both researchers believe their findings support the broader idea that people aren't the perfectly calculating, error-free creatures of traditional economic models. They're turning down free money — even after they're informed they can get free money.

I am deeply skeptical of and repulsed by nudging. The idea has merit and probably, under carefully defined circumstances, effectiveness but by-and-large it involves central planners with an authoritarian streak trying to surreptitiously shape the decisions of others, usually at some cost and little effectiveness and even destructive failure.

The arrogance and disrespect is unconsciously on display in this article. It is palpable - "The morons don't know enough to accept free money!"

The low cog central planning statists seem unable to comprehend that people are not group averages and that people live under a multiplicity of circumstances, beliefs, goals, aspirations, assumptions, etc. Just providing more information is rarely effective at changing behaviors and decisions. One of the most effective mechanisms for changing behaviors is for people with a shared set of circumstances to see other similarly situated people enjoying obvious benefit and no downside from the intervention.

But when that happens in real life, there is no need for intervention. People self-adjust out of their own self-interest (no matter how that self-interest varies might from that of the central planners). You don't have to nudge them, they go.

Most nudging efforts have the sotto voce assumption on the part of well-intended but cognitively mundane central planners that they are better placed to understand the needs and wants of others than free people themselves. They are essentially trying to hide coercion by masking it as nudging.

The researchers don't have a solid answer for why the nudges failed. They believe, however, a big part of the problem has to do with tax forms. "Those of us who file taxes know that it's not so easy to file taxes," Rothstein says. "And so we've gotten people to understand that it's there and to want it. But we haven't really given them the tools that it would take to make it easy for them to claim it."

Linos and Rothstein believe our tax system is too complicated, and that we should make claiming the EITC, and filing for taxes more generally, much simpler. Linos says the good news is that other countries provide examples of systems that don't require mind-numbing paperwork to file for taxes or receive government benefits. "In a lot of countries, the government uses information they already have on you to pre-populate your tax forms," she says. In other words, they tell you what you owe. Or are owed. Then you can just look it over and click send.

In English - "We central planners think people are too stupid to understand what is good for them. We wish we lived in a more totalitarian country where the government tells people what to do and how much money to give."

"Its not that people want to be stupid. The capitalist system makes them stupid."

A dark view of the findings might write off this population as doomed to poverty because of bad decision-making and self-destructive behavior. But psychologist Eldar Shafir and economist Sendhil Mullainathan suggest a more charitable lens, which they call the "psychology of scarcity ." Their research suggests the poor bear a unique cognitive burden that hurts their decision-making. They work long hours. They have higher stress. They're consumed with thinking about paying their rent, getting their kids medical care, and putting food on the table. Shafir and Mullainathan find these stresses lower their "mental bandwidth," and it might help explain why so many low-income Californians are turning down free money.

My alternative view is that the zero effectiveness of the nudge likely says something else than that citizens are stupid not to do what the State wants them to do. Alternative hypotheses include:

Yes, the forms and the tax system are needlessly complex, lack transparency, and have unintended net affects which aren't anticipated.

Whole classes of people want to keep their lives more shielded from the government. Taking the nudge opens them to risks from government action.

Some people are insulted by government trying to run their lives.

There are consequences to taking the nudge which the central planners are not understanding.

There is a risk-benefit trade-off which the central planners are not understanding.

There is a higher margin of benefit spending the time on some other activity than on form filling and complying.

We're the government and we're hear to help is not a credible sales positioning.

"Look, free money" is experientially a rarely true statement and frequently a high cost/risk sales line. Hearing that pitch, people turn away.

The list goes on and on.

There are two scenarios based on this nudge case.

A - Mid-level Polisci majors working as bureaucrats in a state agency have such a clear and real understanding of the world of potential beneficiaries that the only explanation for people not taking the "free" money is that they are stupid.

Or

B - Citizens are pretty canny and have different risk sensitivities, constraints, value-systems and objectives than the nomenklatura comprehend.

I'll go with B.