Nudging Debtors to Pay their Debt: A Randomized Control Trial

We will implement nine different conditions/treatments based on factorial combinations of social and normative nudges (plus an additional control treatment). The letters in all treatments will be sent using the same envelope design, in particular the envelope that turned out to attract the highest response rate in the first trial (for further details, please refer to the pre-registration of the first trial at https://www.socialscienceregistry.org/trials/5023).

2020-02-12

2020-02-14

(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 March 11, 12, or 13, depending on whether the particular letter was sent on February 12, 13, or 14);
(ii) debtors' payments within four weeks starting from the day after the outgoing mail (i.e., March 12, 13, or 14, depending on whether the particular letter was sent on February 12, 13, or 14), as the letter will be received the day after it has been forwarded at the earliest.

In this randomized control trial, the information in the mailings sent to clients will be augmented by different nudges. The Baseline condition of the 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.''

One dimension of the factorial treatment design is to add the following Social nudge before the standard text of the letter (which holds true for the country where the RCT is conducted): ``Approximately 1 out of 9 persons in [country] has just like you a debt to a debt collection company. Thus, you belong to a small part of the population that has a debt of this kind.'' The second dimension of the factorial design consists of three different Normative nudges using the following phrasing, added before the standard text of the letter (but below the social nudge, if applicable):

#1 (P-I): Pay your debt today and save a lot of money! It has the following benefits to you: (i) You avoid additional fees and interest; (ii) You avoid worsening your future economy; (iii) You avoid legal actions.

#2 (P-E): Pay your debt and feel free! It has the following benefits to you: (i) You avoid additional fees and interest; (ii) You avoid worsening your future economy; (iii) You avoid legal actions.

#3 (N-I): To not pay your debt is very expensive for you! It has the following consequences for you: (i) Additional fees and interest will be added; (ii) You risk worsening your future economy; (iii) You risk legal actions.


Note that the different versions of the normative nudges vary along two dimensions: (i) While #1 and #2 are framed positively (in terms of benefits resulting from settling one's debt), #3 provides the same information framed negatively (in terms of negative consequences). (ii) Likewise, while #1 and #3 provide objective information, #2 calls upon the recipients emotions (``feel free!''). By this means, the treatment design can be summarized as a 2 (social) x 2 (framing) x 2 factorial design. Yet, we do not include the factorial combination of a negatively framed statement calling upon the client's emotions since the corresponding phrasing of the information contravenes a principle of the partnered debt collection agency regarding communication with their clients.

randomization done in office by a computer

individual-level randomization

No

nine treatment groups of debtors

41,000 debtors

4,550 debtors per treatment condition

For details, please refer to the attached pre-analysis plan.

Preregistration_Nudges.pdf

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