CeDEx Seminar - Lorenz Goette (National University of Singapore)

How nudges create habits: theory and evidence from a field experiment

We run a field experiment that monitors behavioral responses to nudges at a high frequency during and post-treatment and varies the duration of treatment cycles. We document asymmetry: treatment effects emerge immediately with nudges, neither grow nor wane with continued treatment, and gradually decay after nudges stop, taking longer to decay the longer the duration of treatment. To study the underlying behavioral mechanism for these dynamics, we extend the traditional consumption-based model of habit formation to incorporate salience and the possibility of state-dependent attention. We structurally estimate the model and find that a dynamic attention-based mechanism best predicts consumption responses to nudges in our context, both in and out of sample. Through counterfactual simulations, we illustrate the importance of identifying the underlying behavioral mechanism by contrasting implications of consumption- and attention-based habit formation when designing nudge interventions for sustained behavioral change.