We address the role of “psychological frictions” in the incomplete take-up of EITC benefits with an IRS field experiment. We specifically assess the influence of program confusion, informational complexity, and stigma by evaluating response to experimental mailings distributed to 35,050 tax filers who failed to claim $26 million despite an initial notice. While the mere receipt of the mailing, simplification, and the heightened salience of benefits led to substantial additional claiming, attempts to reduce perceived costs of stigma, application, and audits did not. The study, and accompanying surveys, suggests that low program awareness/understanding and informational complexity contribute to the puzzle of low take-up.

Policymakers have recently embraced Behavioral Economics as an alternative approach which recognizes the limits and consequences of human decision-making. Early applications of BE (“nudges”) produced notable successes and helped to set the stage for more aggressive applications aimed at the deeper causes of policy problems. We contend that policies that aspire to simplify products and incentives, rather than choice environments, aggressively protect consumers from behavioral exploitation, and leverage BE to enhance the design and implementation of traditional policy instruments offer solutions commensurate with contemporary challenges. Case studies in health insurance, privacy, and climate change illustrate the application of these ideas.