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Can a nudge make debtors budge? Four Field Experiments on Payment Reminders

Dates:
  • Mon 03 Feb 2020 09.30 - 12.00
  Add to Calendar 2020-02-03 9:30 2020-02-03 12:00 Europe/Paris Can a nudge make debtors budge? Four Field Experiments on Payment Reminders

This dissertation tests various messaging strategies to improve debt repayment among overindebted individuals. In order to do so, I carry out four field experiments in cooperation with a credit management company in Riga, Latvia. I examine the effects of personalizing a message, social norm, reputational concerns, public goods, framing, sequencing, salience, as well as the effect of communication on payment rates. The field experiments explore how debtors respond to these messages at different stages of the debt-recovery process (those who have already defaulted; those on a debt-repayment plan), on various types of debts (consumer debts; hospital debts) and through various communication channels (email; mobile text messages; regular mail).

Chapter 2 provides insights on debt repayment from the perspectives of rational choice theory, behavioural economics and the field of cognitive psychology. The chapter provides the theoretical framework for the experiments and sets out several hypotheses. Chapter 3 explains the methodology behind the experiments. It includes a description of the setting, design, treatments and other common properties of the experiments presented in the thesis.

The remaining four chapters are devoted to analysis from each of the experiments. The sample for the experiment presented in Chapter 4 consists of 24,950 defaulted individuals with consumer debts. The intervention was delivered via mobile text messages and emails. Chapter 5 reports on an adaptive–randomized trial with 4,821 defaulted consumer debtors. The intervention was delivered via regular mail. The 9,196 debtors for the experiment reported in Chapter 6 differ from the previous two experiments with the type of debts. All of the debtors in the sample have unpaid bill to a public hospital. It gives the possibility to compare the effect of nudges on debts with private and public institutions. The intervention was delivered via mobile text messages and emails. Chapter 7 focus is on 2,497 consumer debtors who have already started to pay back the debt instead of being in a status of default. The intervention was delivered via mobile text and email.

The experimental results reveal that a simple act of communication reminding a debtor of a debt is effective only among defaulted consumer debtors. Also, there is no effect for a reminder referring to a social norm, public good or reputational concerns. At the same time, personalization of a message improves the payment rate among defaulted individuals with hospital debts. The same is true for consumer debts if the loan value is less than €150. Overall, the four field experiments present evidence that defaulters are acting in accordance with the rational model. On the other hand, individuals are punishing the lender if they consider the debt-collection as too aggressive or unjust. For this reason, some of the nudges have a negative effect. Particularly, sending a message to a defaulted individual in a red envelope significantly decreases the payment rate. The data also suggests that, among individuals on a repayment plan, sending a reminder has a negative effect because of the costs of annoyance, evoking psychological reactance.

Seminar Room 4 - Badia Fiesolana DD/MM/YYYY
  Seminar Room 4 - Badia Fiesolana

This dissertation tests various messaging strategies to improve debt repayment among overindebted individuals. In order to do so, I carry out four field experiments in cooperation with a credit management company in Riga, Latvia. I examine the effects of personalizing a message, social norm, reputational concerns, public goods, framing, sequencing, salience, as well as the effect of communication on payment rates. The field experiments explore how debtors respond to these messages at different stages of the debt-recovery process (those who have already defaulted; those on a debt-repayment plan), on various types of debts (consumer debts; hospital debts) and through various communication channels (email; mobile text messages; regular mail).

Chapter 2 provides insights on debt repayment from the perspectives of rational choice theory, behavioural economics and the field of cognitive psychology. The chapter provides the theoretical framework for the experiments and sets out several hypotheses. Chapter 3 explains the methodology behind the experiments. It includes a description of the setting, design, treatments and other common properties of the experiments presented in the thesis.

The remaining four chapters are devoted to analysis from each of the experiments. The sample for the experiment presented in Chapter 4 consists of 24,950 defaulted individuals with consumer debts. The intervention was delivered via mobile text messages and emails. Chapter 5 reports on an adaptive–randomized trial with 4,821 defaulted consumer debtors. The intervention was delivered via regular mail. The 9,196 debtors for the experiment reported in Chapter 6 differ from the previous two experiments with the type of debts. All of the debtors in the sample have unpaid bill to a public hospital. It gives the possibility to compare the effect of nudges on debts with private and public institutions. The intervention was delivered via mobile text messages and emails. Chapter 7 focus is on 2,497 consumer debtors who have already started to pay back the debt instead of being in a status of default. The intervention was delivered via mobile text and email.

The experimental results reveal that a simple act of communication reminding a debtor of a debt is effective only among defaulted consumer debtors. Also, there is no effect for a reminder referring to a social norm, public good or reputational concerns. At the same time, personalization of a message improves the payment rate among defaulted individuals with hospital debts. The same is true for consumer debts if the loan value is less than €150. Overall, the four field experiments present evidence that defaulters are acting in accordance with the rational model. On the other hand, individuals are punishing the lender if they consider the debt-collection as too aggressive or unjust. For this reason, some of the nudges have a negative effect. Particularly, sending a message to a defaulted individual in a red envelope significantly decreases the payment rate. The data also suggests that, among individuals on a repayment plan, sending a reminder has a negative effect because of the costs of annoyance, evoking psychological reactance.


Location:
Seminar Room 4 - Badia Fiesolana

Affiliation:
Department of Political and Social Sciences

Type:
Thesis defence

Contact:
Monika Rzemieniecka (EUI - Department of Political and Social Sciences) - Send a mail

Defendant:
Andris Saulitis (EUI - Department of Political and Social Sciences)

Examiner:
Prof. Philipp Genschel (EUI - Robert Schuman Centre for Advanced Studies)
Prof. Christina Gravert (University of Copenhagen)
Prof. Peter John (King's College London)

Supervisor:
Prof. Diego Gambetta (EUI - Department of Political and Social Sciences)

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