Since I've begun posting projects to itch.io, I've had a mix of paid and pay-what-you-want projects available. I've noticed that, in spite of the projects being technically free, the pay what you want projects tend to actually earn more than the paid ones. Because of this, I'm thinking of making everything pay what you want. 

Is this a bad idea? If I follow through with this plan, what's the best way to implement the change and let people know?

the pay what you want projects tend to actually earn more than the paid ones

Interesting. I only have speculation as to why that might happen, but do you have any insights why it actually is?

Is there a significant correlation between downloads, views and payouts maybe? 

For me as a player, I can try pay what you want. I mostly can not try paid stuff and have been snuckered too often  with false promises with trailers and advertising.  

Though, the difference between pay what you want vs paid + free version (or rather public version + premium version) might not be as big, as the diff between pwyw vs paid without demo.

As for your question, whom would you want to let know?  Your followers will get notification of any devblog or update you make, where you explain your intentions. And you well uhm non-followers mostly do not even know you exist, so that is not an issue.

You could also change previously paid to have tiers, and offer basic  free stuff and the old paid price would be the tier to get the full stuff. The main concern would be your old customers. But you should read the docs about what happens when you change  payment methods of an existing project. 

Other than that, it is you stuff, you can sell or offer it anyhow you want. Unless you remove content  that was paid for, I do not see problems here.