A dive into the deep end! The thinking behind the tax return.
Yes, it's that time again! You are being spammed with messages from the IRS that you have to file tax returns again already. You may be dreading filling out all those forms, but on the other hand, you may be thinking, "maybe I'll get a lot of money back and I can finally buy those nice shoes." That very thought has been very important for the Tax Office to encourage as many people as possible to file tax returns. But how exactly does this work and why do we file tax returns this way? Good questions deserve good answers, so feel free to read on!
Prospect theory
Okay so it is clear that our declaration system is not there for no reason, there is (fortunately) a thought behind it. This thinking can be explained by the prospect theory, freely translated as: the prospect theory. Prospect theory is about the feeling you get when winning and losing. It is mainly about the estimate you make in which certainties (such as getting money) are more important than (how likely is it that I will get money?). Think of it like a game of poker. You're playing poker with your buddies and you decide to go all-in. This turns out to be a good decision and you win! You feel euphoric and start thinking about what you can do with this money. Suppose it was not a good move and you had lost, you probably feel a little down. Still, you go for another round, because the feeling of winning makes up for losing a bit!
So the feeling of winning affects what decisions you make. We as humans make two types of decisions: a thoughtful decision or an impulsive decision. For example, a thoughtful decision is thinking carefully about which new bicycle you buy. For example, it should be cheap, but it should also be a good bike that will last a long time. An impulsive automated decision is, for example, standing in the appie and thinking, "I'm in the mood for chips, I see chips on the shelf, what the heck I'll buy a bag of chips." Back to playing poker for a moment. When you play poker and you lose but you still decide to move on, this is an automated impulsive decision. The feeling of winning overcomes the feeling of losing, even though you are much less likely to win than to lose.
But what does this have to do with doing your tax return?
How does the IRS use prospect theory?
Getting money back = winning
When you file your tax return you often get a euphoric feeling when you actually get money back from the government. That 300 euros you then get back, for example, still feels like winning free money from the Tax Office. This is exactly the formula behind the whole tax return system. In addition, the Inland Revenue tries to make it as easy as possible by filling out the tax return largely in advance for you. This makes it seem like a small effort to file the tax return when you know that you have a chance of getting quite a bit of money back. As a result, getting money back feels a lot like the feeling when you win money on a scratch card.
How the IRS makes sure we follow the rules.
The feeling of winning and losing greatly affects how we behave. This is also the reason why we like to (have to) file tax returns because the IRS makes sure that filing returns gives us a chance to get money back. After all, getting money back is winning! We then forget for a moment that we are just getting this money back and that we have already paid it before. This is a good example of how laws and or rules cause people to file tax returns, by capitalizing on the feeling of winning. So the feeling of winning causes us to behave according to the law and file tax returns! Very clever!
Anyway, getting money back is always nice and if it makes you feel very happy and makes you file your tax return faster, that's a good thing. Who would have thought filing tax returns would be so much fun and comparable to winning a poker game!
Having difficulty filing tax returns?
Do you find this theory interesting but unfortunately it does not work on you and you still experience the tax return as very difficult? No problem! Jan de Belastingman is happy to help you with your income tax return. Or else take a look at our news page, where you will find lots of interesting articles about taxes described in simple and clear language. If you still have questions then you can always ask your question in the chatbot which is available 24/7. That way you can enjoy to the fullest when you get money back from the Tax Office!