When presented with pre-set courses of action or defaults, we tend to ‘go with the flow’, acting without considering other options and simply accept what’s been chosen for us.
A simple example is the default password setting for our mobile phones or our voice mail, which we rarely change.
But why do people do this?
If we made a traditionally ‘rational’ decision, we’d consider all the options open to us in a considered and balanced way, and not be influenced by the option that’s been selected for us. Yet our decisions are likely to be swayed by:
- Inertia and laziness: James Choi, Professor of Finance at Yale School of Management, says: “it’s about inertia … the status quo is the choice that takes the least amount of effort”
- Lack of expertise: When we aren’t sure what to do and lack expertise in the area in question, we consider the default as a form of advice from those more knowledgeable than ourselves
- Loss aversion: The thought of switching away from the default may also suggest what we could lose by switching, which may make us reluctant to change
- Procrastination: Particularly if the decision comes low down on our priority list, we’ll likely procrastinate taking a decision and accept the pre-set option
In the words of Richard Thaler, behavioural economist and co-author of bestselling book ‘Nudge’:
“The combination of loss aversion with mindless choosing implies that if an option is designated as the “default”, it’ll attract a large market share. Default options thus act as powerful nudges.”
Furthermore, Cass Sunstein, behavioural scientist and second co-author of ‘Nudge’ highlights:
“Of all the tools in the choice architect’s repertoire, default rules may be the most promising. They’re almost certainly the most discussed. Whether the area involves savings behaviour, poverty reduction, or the environment, default rules have had significant effects on outcomes.”[1]
Recent reviews have found consistently strong impacts from changing the default. A 2019 review of 308 behavioural science-based behaviour change interventions across 100 studies, interventions using defaults had a 50% impact on average. This makes defaults one of the strongest, if not the strongest, behavioural science tool.[2] A 2018 study by Jon Jachimowicz and colleagues reviewed many studies applying defaults and found that almost 80% found a positive and reasonably large impact in participation from changing the default setting; on average increasing participation by around 27%.[3]
Default bias illustrated
One of the most well-known applications of defaults is in the area of enrolment into retirement savings schemes and pensions. In this application of defaults, employees are automatically opted into a scheme by their employer, although they have complete freedom to opt-out if they choose.
- In the US, auto-enrolment into retirement savings schemes (known as 401(k) private pensions or defined contribution pensions) has boosted enrolment rates from 49% to 86% (Mandrian and Shea 1999). This has been aided by the 2006 Pension Protection Act which allows employers to automatically enrol employees in 401(k) plans. Employees still retain the right to opt out of enrolment. Automatic enrolment has increased 401(k) participation rates from typical 65-75% to 90% or more (Choi, Laibson, Madrian and Metrick, 2001). And most employers now offer this. In 2014, about 68% of American companies offered automatic 401(k) enrolment programs to at least some of their staff, up from 57% in 2010 according to a survey by Towers Watson
- The UK also adopted auto-enrolment for pensions in 2012, with positive impact so far. By 2019 opt-out rates were around 5% meaning that most of the working population are now contributing towards a pension. Moreover, the recent automatic increase in contribution rate, from 2% to 5% of pay, hasn’t affected opt-out rates either. In fact, research by Nesta Insight found that only 49% of employees noticed an increase in their contribution.
Case studies like this illustrate how defaults can significantly influence our behaviour. Behavioural economists, governments and companies are recognising this and are now beginning to apply the knowledge in many other areas including healthcare, payment systems, charity donations, green energy, environmental conservation and more.
So, what does this all mean?
When researching a context or sector, search out what defaults exist for consumers. How are their choices being steered by existing defaults?
PREVIOUS ARTICLES IN THE SERIES:
System 1 & 2
Heuristics
Optimism bias
Availability bias
Inattentional blindness
Change blindness
Anchoring
Confirmation Bias
Framing
Loss aversion
Reciprocity
Hot cold empathy gaps
Social norms part 1
Social norms part 2
Commitment bias
Affect Heuristic
Paradox of Choice
Mental accounting
Status Quo Bias
Cognitive ease
[1] Sunstein, C. (2017) “Nudges that fail” Behavioral Public Policy, Volume 1, Issue 1, pp. 4-25
[2] Hummell and Maedche, ‘How effective is nudging? A quantitative review’ 2019
[3] Jachimowicz, Jon and Duncan, Shannon and Weber, Elke U. and Johnson, Eric J., When and Why Defaults Influence Decisions: A Meta-Analysis of Default Effects (December 4, 2018). Available at SSRN: https://ssrn.com/abstract=2727301 or http://dx.doi.org/10.2139/ssrn.2727301
