The most important thing politicians can do to make the upcoming tax stimulus work, say some behavioral economists, is to change the name. Thought you were giving out rebates? Nope. You're giving out bonuses. Controlled studies where half the group is given a rebate of value X and half the group is given a bonus of the same value find that those with the bonus spend more than twice what those with the rebate do. "Psychologically speaking, they conclude, "[a rebate is the return of a loss of one’s own money rather than a pure gain provided by someone else, so it is unlikely to be seen as extra spending money. Getting a rebate is more like being reimbursed for travel expenses than like getting a year-end bonus. Reimbursements send people on trips to the bank. Bonuses send people on trips to the Bahamas." The way we frame economic questions matters massively to how individuals answer them. "People are more willing to treat 600 people infected with a deadly virus when they are told the treatment will save 200 of those lives, than when they are told that it will kill 400 of them," says the article. "People are more likely to donate to a charity when the cost is described in terms of pennies per day instead of dollars per year. And more people say they could live on 80 percent of their income than say that they could save 20 percent of their income." Ever met an investment banker ecstatic to save $20 on shoes but disappointed by a $1,000 Christmas bonus? That's what's called an economic framing effect. And the economic impacts of it are important. So if we want this stimulus to matter, we'd better sit down and figure out a decent name for it. Maybe the X-Box Encouragement Program?
