Nudging Debtors to Pay their Debt: A Randomized Control Trial

2019-11-18

2019-11-20

(i) debtors' responses to the mailing
(ii) debtors' repayments

(i) debtors' responses to the mailing based on any of the communication means offered in the letter, i.e., phone calls, e-mails, and hard-copy letters, within four weeks starting from the day of the outgoing mail (i.e., until December 14, 15, or 16, depending on whether the particular letter was sent on November 18, 19, or 20);
(ii) debtors' payments within four weeks starting from the day after the outgoing mail (i.e., December 15, 16, or 17, depending on whether the particular letter was sent on November 18, 19, or 20), as the letter will be received the day after it has been forwarded at the earliest.

We will implement five different conditions with varying envelope designs that are intended and assumed to attract the recipients' attention: (i) a control treatment with a blank envelope only containing the company logo in the top left corner (which is equivalent as the envelope design the company has used up to now), (ii) a colored envelope with a stamp saying ``Important! Open me'', (iii) a colored envelope with a word cloud emphasizing that the letter contains ``important information,'' translated into ten languages that are most spoken by the debt collection agency's customers, (iv) a colored envelope with playfully illustrated birds to attract attention, and (v) a colored envelope with congenial, friendly-looking eyes, illustrated as if they would watch the recipient from the inside of the letter.

In this randomized control trial, only the envelope designs will be varied while the letter itself will be held constant across all conditions. The letter, which is a simplified version of the company's previous standard letter, reads: ``We want to help you to be free of your debts. You do currently have one or more cases with us with unpaid debts. On ``My Page'' you find a breakdown of your debts that today amounts to [amount]. You find ``My Page'' on [url]. Below you see information about how you can pay and contact us.'' In addition, the letter contains an overview about the different payment options and the note that ``[if] you do not have the possibility to pay your debt, contact us so that we can review your case and find a solution that works for you.''

randomization done in office by a computer

individual-level randomization

No

five treatment groups of debtors

35,000 debtors

7,000 debtors per treatment condition

We conducted two large-scale, highly powered randomized controlled trials intended to encourage consumer debt repayments. In Study 1, we implemented five treatments vary- ing the design of envelopes sent to debtors. We did not find any treatment effects on re- sponse and repayment rates compared to the control condition. In Study 2, we varied the letters’ contents in nine treatments, implementing factorial combinations of social norm and (non-)deterrence nudges, which were either framed emotively or non-emotively. We find that all nudges are ineffective compared to the control condition and even tend to induce backfiring effects compared to the agency’s original letter. The results of this study contrast with the findings of other studies, which indicate that comparable nudges are highly effective. Thus, our results are more consistent with the literature suggesting that the success of nudging interventions is limited to certain conditions.

Holzmeister, F., Huber, J., Kirchler, M., & Schwaiger, R. (2022). Nudging Debtors to Pay Their Debt: Two Randomized Controlled Trials. Journal of Economic Behavior and Organization, 198: 535-551.

https://doi.org/10.1016/j.jebo.2022.04.006