Nudges have long been recognized as devices that can influence individuals to take positive actions. Because they are relatively cheap to implement, effective nudges can be a useful policy tool. But can nudges lead to or even exacerbate differences in outcomes across different groups of people?
In “The Disparate Effect of Nudges on Minority Groups,” Maya Haran Rosen and Orly Sade explore this question in the context of the Savings for Every Child Program in Israel. Under this program, launched in 2017, for every child under eighteen the Israeli government deposits some money each month into a savings account. Parents can elect to save additional amounts for the child from their own finances and to make investment choices.
After the program was launched, text message nudges were sent to households drawn largely from two geographic areas. The authors find that, on the whole, the nudge was effective in inducing active participation from parents. However, the response from two minority groups in Israel, Arabs and Ultra-Orthodox Jews, was only half as large as from the general population. The authors show that the reasons for the lower response from the minority groups include lower digital literacy (specifically, less use of smartphones), weaker trust in the government, and lower financial literacy. However, even accounting for all these factors, there is a gap in the response from the minority groups, suggesting that unobserved cultural effects may also play a role. The overall message is that even well-intended policies that require target recipients to take an active step can sometimes generate disparities.
Spotlight by Uday Rajan
Photos courtesy of Maya Haran Rosen and Orly Sade