Defaults are very influential because many of us have a tendency not to act. We procrastinate, find it hard to choose or are frozen by inertia and, therefore, end up with the default. Many studies have examined how tweaks (such as having to “opt out” of a policy rather than “opt in”) can have large implications for society. Governments, businesses and others are using defaults to make changes. Individuals can too.
Opt on – or opt out?
Several governments are changing retirement savings schemes for workers, enrolling them automatically unless they actively opt out.
Research from the United Kingdom blogged by the Government’s Behavioural Insights Team (or “Nudge Unit”) found the opt-out rate from the first year of the roll-out was just nine per cent and “the participation rate rose from 36% to 71% in those companies who previously required employees to make an active choice”. The power of such “opt out” policy shifts has been seen in other sectors, notably organ donation rates in the health sector.
Do you want insurance with that?
Many shoppers will have used an online retailer that attempts to use default settings to their advantage. Booking a flight, the website may presume you will want travel insurance, a hotel, a car, extra baggage.
The first occasional paper by the Financial Conduct Authority in the United Kingdom, issued in April 2013, gives the example of sales of two similar products, one with the add-on insurance set to “yes, please” and the other to “no, thank you”. Take a guess which one sold double the insurance. The FCA writes “while not conclusive, these facts alone suggest that we should investigate whether consumers are buying products they do not want because of the default setting”.
The double-edged default
Depending on circumstances, defaults can either be helpful or a hindrance. In that way, they could be described as a doubled-edged sword. The eZonomics article Five ways “doing nothing” can actually help explains how default insurance and other policy renewals or automatic bill payments might help avoid expensive mistakes and penalty fees.
However, Six ways “doing nothing” can harm finances tells how a wrong default option could end up costing more. If someone on nightshifts has their energy set to a default plan that suits someone who works from 9am to 5pm, for example, their energy bills may be more costly.
Defaults are prevalent – with mobile phone plans, home energy tariffs and investment profiles all often set to a default option. Having these defaults can be handy, especially if it removes a barrier to doing something that’s good for you but sometimes it will pay to spend time to finding the specific plan that suits your situation.