Behavioral Economics for Leaders

CHAPTER 34Communicating Good Intentions Gets You a Better Outcome

Many companies or public institutions suffer when customers don’t pay their bills on time. The administrative costs as well as the effort and expenditure of monitoring can be enormous, so people look for cost‐efficient ways to improve the payment morale of customers. One way consists of nudging by appealing to fairness.

Wolfram Rosenberger, himself an outstanding musician, is Director of the Innsbruck Music School. The school educates 3,000 children and adolescents in their free time in various subjects, which includes virtually all instrument genres, choir singing, and folk music. The music school is essentially funded by the city of Innsbruck, but parents are requested to make a financial contribution to the costs because individual lessons account for a large part of musical education and require substantial resources in terms of staff and money. Parents receive an invoice twice a year for a financial contribution to school costs that must be paid within two weeks. Usually, between 40% and 50% of parents pay the bill within the specified deadline. A reminder letter is sent to people who don’t make a payment within the two‐week period. If there is no response to the reminder, a past‐due notice is sent to parents. If the invoice is still unpaid after repeated notices, a music student can be expelled from classes. The reminders and past‐due notices entail considerable administrative expenditures, and expulsion ...