Decision Science News

TYPES OF DEFAULTS AND HOW TO SET THEM

Defaults are settings or choices that apply to individuals who do not take active steps to change them (Brown & Krishna, 2004). Collections of default settings, or “default configurations” determine the way products, services, or policies are initially encountered by consumers, while “reuse defaults” come into play with subsequent uses of a product. At the finest level, a single question can have “choice option default”, which on electronic forms can take the shape of a pre-checked box (Johnson, Bellman, and Lohse, 2002).

Defaults have been shown to have strong effects on real-world choices in domains including investment (Cronqvist & Thaler, 2004; Madrian & Shea, 2001), insurance (Johnson et al, 2003), organ donation (Johnson & Goldstein, 2004), marketing (Goldstein et al, 2008) and beyond.

They have a wide appeal among marketers and policy makers in that they guide choice while at the same time preserving freedom to choose. They are often regarded as the prototypical instruments of libertarian paternalism (Sunstein & Thaler, 2003).

Through default-setting policies, choice architects exhibit influence over resulting choices. The palette of policies includes simple defaults (choosing one default for all audiences), random defaults (assigning a configuration at random, for instance, as an experiment), forced choice (withholding the product or service by default, and releasing it only after an active choice is made), and sensory defaults (those that change according to what can be inferred about the user, for example, web sites that change language based on the visitor’s IP address).

Products and services that are re-used can also avail themselves of persistent or reverting defaults (which, respectively, remember or forget the last changes made to the default configuration) and predictive defaults (which intelligently alter reuse defaults based on observation of the user).

Those setting defaults should be aware of the ethical risks involved (Smith, Goldstein & Johnson, 2010). The ethical acceptability of using a default to guide choice has much to do with the reason why the default has an effect in the first place. When consumers are aware that defaults may be recommendations in some cases and manipulation attempts in other cases (Brown & Krishna), they exhibit a level of “marketplace metacognition” that suggests they retain autonomy and freedom of choice. However, if defaults are effective because consumers are not aware that they have choices, or because the transaction costs of changing from the default are too high, defaults impinge upon consumer autonomy. An often prudent policy, though not a cure-all, is to set the default to the alternative most people prefer when making an active choice, without time pressure, in the absence of any default. Running an experiment on a sample of the greater population can determine these preferences, and can be done in little time and at a low cost in the age of Internet experimentation (Gosling & Johnson, 2010).

REFERENCES

Brown, Christina L. and Aradhna Krishna (2004), “The Skeptical Shopper: A Metacognitive Account for the Effects of Default Options on Choice,” Journal of Consumer Research, 31 (3), 529-539.
Cronqvist, Henrik and Richard H. Thaler (2004), “Design Choices in Privatized Social Security Systems: Learning from the Swedish Experience,” American Economic Review, 94 (2), 424-428.
Goldstein, Daniel G., Eric J. Johnson, Andreas Herrman, and Mark Heitmann (2008), “Nudge Your Customers Toward Better Choices,” Harvard Business Review, December, 99-105.
Gosling, Samuel D. and John A. Johnson (2010), Advanced methods for conducting online behavioral research. Washington, DC: American Psychological Association.
Johnson, Eric J., Steven Bellman, and Gerald L. Lohse (2002), “Defaults, Framing, and Privacy: Why Opting In Is Not Equal To Opting Out,” Marketing Letters, 13 (1), 5–15.
Johnson, Eric J. and Daniel G. Goldstein (2003), “Do Defaults Save Lives?” Science, 302, 1338-1339.
Johnson, Eric J., John Hershey, Jacqueline Meszaros, and Howard Kunreuther (1993), “Framing, Probability Distortions, and Insurance Decisions,” Journal of Risk and Uncertainty, 7, 35-53.
Madrian, Brigitte C. and Dennis F. Shea, D. F. (2001), “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior,” Quarterly Journal of Economics, 116 (4), 1149-1187.
Thaler, Richard, Daniel Kahneman and Jack L. Knetsch (1992), “The Endowment Effect, Loss Aversion and Status Quo Bias,” in Richard Thaler, The Winner’s Curse, Princeton: Princeton University Press, 63-78.
Samuelson, William and Richard Zeckhauser (1988), “Status Quo Bias in Decision Making,” Journal of Risk and Uncertainty, 1 (1), 7-59.
Smith, N. Craig, Daniel G. Goldstein, and Eric J. Johnson (2010). Choice without Awareness: Ethical and Policy Implications of Defaults. Working paper.
Sunstein, Cass R. and Richard H. Thaler (2003), “Libertarian Paternalism Is Not an Oxymoron,” The University of Chicago Law Review, 70 (4), 1159-1202.

ASSOCIATION FOR CONSUMER RESEARCH CONFERENCE, OCT 7-10, 2010

What: The Association for Consumer Research Annual North American Conference [Website]
Where: Jacksonville, FL
Hotel: The Hyatt Regency [Map] [Booking]
When: OCT 7-10, 2010
Registration: Available now online
Early-bird deadline: Sept 1. Second price hike at Sept 25th.

ACR 2010 Jacksonville is open for registration!

Decision Science News notices that this year, the conference uses “green defaults”. Innovative! Check it out:

• You will have the option to opt out of the complete program given at the conference. You can build your own program on the ACR website by going to www.acrweb.org/acr and signing in. Once there, choose the “program” option, and you will see the new tool which you can utilize. Print your customized program and bring it with you!
• The default meal is vegetarian. You will have the option to opt out of the vegetarian meal.

Build-your-own-program is neat. We usually look at about half of the program, and end up needing about 20% of it at the conference. They have some other nudges as well:

• You will have the option of buying carbon offsets for your flight.
• You can choose the electronic version of the proceedings instead of a hardcover copy and receive a $20 discount.

The discount for the e-proceedings seems like a classic incentive. Decision Science News just registered and found that they used no default (forced choice) for this question. They could have made the default the green one and said “hardcover available for an extra $20”. In any case, we are glad to see research put to use.

AUTOMATIC INDIVIDUAL RETIREMENT ACCOUNTS

The New York Times has an interesting article called Savings Accounts for All: Simple but not Easy, which talks of the Obama administration’s plans to set up an automatic IRAs (Individual Retirement Accounts) for workers in the USA.

This is clearly policy in the behavioral economics / Nudge tradition, which is no surprise as Nudge author Cass Sunstein will be named head of the Office of Information and Regulatory Affairs in the present administration. The article even mentions research on the effects of autoenrollment, though it would have been nice had the NYT named the academics who carried out the research. Since the article does not, Decision Science News will give some citation love here:

• Brigitte C Madrian & Dennis F Shea. (2001). The Power of Suggestion: Inertia in 401 (k) Participation and Savings Behavior. The Quarterly Journal of Economics, 116(4), 1149-1187.
• Richard H. Thaler & Shlomo Benartzi (2004) Save More Tomorrow Using Behavioral Economics to Increase Employee Saving. Journal of Political Economy, 112 (1, pt. 2), S164-S187.

SIDENOTE
On a sidenote, the article mentions that in the proposed plan “There would be a standardized default investment, probably some kind of mutual fund with a mix of stocks and bonds that gets more conservative over time.” Since many outside of Finance do not know this, Decision Science News would like to direct its readers’ attention to the fact that there is not universal agreement among academics that portfolios should get more conservative with age. Some think one ought to pick the right asset allocation and stick with it throughout life. See this clearly-written article for a review.

RELATED POSTS
The daily defaults with power to change lives
Default effects of organ donation

Photo credit: Amazon.com

DEFAULTS DO MATTER

Decision Science News and Eric Johnson have teamed up once again to write a piece for the Financial Times on the suprisingly powerful effect of defaults (even simple software defaults) on decisions, from the routine to the life-changing. Their conclusion? History gets written by default. The piece is called “The daily defaults that change lives” and you can read it here.

Eric Johnson and Dan Goldstein have published an investigation of the effect of policy defaults on organ donation in the journal Science [Download]. Defaults determine whether a citizen is in the organ donor pool unless they choose not to be (an “opt out” system, as in some European countries) or is not in the organ donor pool unless they choose to be (an “opt in” system as, in the United States). Looking at real-world data from a variety of European countries in addition to experimental data, it is found that most people stick with the default category they are assigned to.

Across European countries the opt out countries have drastically higher proportions of the population in the potential organ donor pool: a difference of 60 percentage points minimum.

Does the size of the donor pools matter? Johnson and Goldstein find that opt out countries are home to more organ transplantation, and presumably lives saved. This is supported by a regression analysis that controls for religion, educational level, and medical infrastructure.

OUR FIELD’S MOST RECENT NOBEL LAUREATE THALER AMONG EDITORS

Organizational Behavior and Human Decision Processes (OBHDP) is Announcing a Special Issue on Nudges and Choice Architecture in Organizations

GUEST EDITORS

Katherine L. Milkman, University of Pennsylvania (Managing Guest Editor)
Gretchen Chapman, Rutgers University
David Rand, Yale University
Todd Rogers, Harvard University
Richard H. Thaler, University of Chicago

WHY IS THIS SPECIAL ISSUE IMPORTANT?

The 2008 publication of the best-selling book Nudge: Improving Decisions about Health, Wealth and Happiness by Richard Thaler and Cass Sunstein sparked enormous interest in how choice architecture and nudges can be used to improve outcomes in organizations. Policymakers inside and outside of government are scrambling to master new nudging strategies to improve the decisions of citizens, employees and customers. At least 51 countries now boast “centrally directed policy initiatives” influenced by behavioral science, or so-called “nudge-units,” and many Fortune 500 companies are opening similar divisions. A recent review article highlighted the extraordinary cost-effectiveness of nudges relative to other levers of influence (e.g., incentives, rules, educational campaigns) that are typically used by policymakers inside and outside of organizations to influence behavior (Benartzi et al., 2017). However, in spite of the growing applied interest in using nudging as a policy too!
l, far more field research is needed on what nudges and choice architecture strategies work best to change behavior in organizations. This special issue is meant to (a) publish (future) seminal papers testing the efficacy of nudges and choice architecture through field experiments in organizations and (b) substantially accelerate and shape the direction of academic research in this area.

SCOPE OF SPECIAL ISSUE

Appropriate papers should present field experiments (alone or in combination with laboratory experiments) that explore the efficacy of nudging and choice architecture in organizations. By “field experiment”, we mean a study with random assignment of participants to conditions and participants who engaged in the tasks under study in an environment where they naturally undertake these tasks. We are most interested in experiments (a) whose outcomes are measures of actual behavior (rather than self-report), (b) that include participants who are not MTurk workers, undergraduates in a laboratory, or survey panelists from services like Qualtrics and ClearVoice, and (c) that were conducted in real-world organizational settings. We adopt the following definition of a nudge: nudges “aim to change ‘people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, [an]…intervention must be easy and cheap to avoid. Nudges are not mandates’ (Thaler & Sunstein, 2008). Nudges do not impose material costs but instead alter the underlying ‘choice architecture,’ for example by changing the default option to take advantage of people’s tendency to accept defaults passively. Nudges stand in contrast to traditional policy tools, which change behavior with mandates or bans or through economic incentives (including significant subsidies or fines).” (Benartzi et al., 2017)

We particularly seek manuscripts that have several of the following features: introduce new tools of choice architecture, shed light on important ongoing debates in the literature, yield important new empirical or theoretical insights about previously-studied nudges, are of policy importance, or open up promising directions for future research.

An illustrative, but not exhaustive list of topics that fall within the scope of this special issue is provided below:

1. Field validation and testing of nudges or choice architecture techniques in organizations that have previously only been tested in the laboratory or in limited field contexts.
2. Field validation and testing of novel, untested nudges or choice architecture techniques in organizations.
3. Comparisons of effect sizes or cost effectiveness of multiple nudges and/or economic levers related to managerially relevant outcomes.
4. Field results that shed light on novel mechanisms underlying nudges or choice architecture

To learn more or submit a manuscript, visit http://tinyurl.com/obhdp-nudge

OPT-IN VS OPT-OUT POLICIES

We talk a lot about default policies, in particular opt-in policies and opt-out policies (e.g., opt-in vs. opt-out policies for membership in organ donor pools).

When we speak about this stuff, people asking us questions often use the terms backwards or incorrectly. They say opt-in when they mean opt-out and they say opt-out when they mean opt-in. Or they use either when talking about forced choice. Here’s an example from the Chief Technical Officer of Lenovo making the mistake when talking about the Lenovo adware fiasco.

Q. What kind of quality assurance process would even allow for installing this kind of adware on Lenovo machines?

A. At a high level, the team that defines what is in these products will encounter stuff in the market, then they will say, “Here is something we want to do,” and they will engage an engineering team. Then we will go through this thing and make sure it adheres to our policies and practices. We make sure it doesn’t know who the individual is. We make sure it’s opt-in. But what was completely missed in this was the security exposure caused by the design of the certificate authority they used.

Q. There was nothing about this experience that was opt-in.

A. When you buy a Lenovo machine and turn it on, this was one of the programs that was presented to you. At that point, you could click a button that says, “I don’t want to use this.”

Q. I have to press you on that. What did the opt-in prose look like? Nobody recalls anything about this being opt-in.

A. I don’t have it in front of me, but I will get it to you. We want to make this right going forward. Part of this is what we are doing to fix the problem and what are we doing to make this right going forward. To that end, we’re trying to present – in much more plain English — a view of what these programs do.

If the program activated the adware for those who didn’t click “I don’t want to use this”, it was opt-out, not opt-in.

If the program made you answer before activating your computer, it was forced choice (or mandated choice), not opt-in.

HOW TO KEEP IT STRAIGHT

Opt-in means users are out by default and can choose (i.e., opt) to be in.

Opt-out means users are in by default and can choose (i.e., opt) to be out.

Forced choice means people are deprived of the product or service unless they choose to be in or out.

For many policies, forced choice is not an option. For instance, for organ donation, they can make you choose in order to get a driver’s license; they can deprive you of the license. But if you decide you don’t want a driver’s license, the default of the country applies to you. You can’t make being an organ donor a forced choice.

WEATHER FOR THOSE WHO UNDERSTAND GRAPHS AND PROBABILITIES

Click to visit

People ask us, “You folks at Decision Science News, how do you get your US weather forecasts?”

Because we like graphs and probabilities, we go to a page by US National Weather Service puts out that tells us for every hour in the next few days, the predicted temperature, the chance of precipitation, the predicted amount of rain, the predicted amount of snow, and that’s it.

Here’s how to get graphs for your location (Feb 2015)

1. Go to weather.gov
2. Enter your location code where it says “Local forecast by ‘City, St’ or ZIP code” at the top left.
3. On the resulting page, scroll all the way to the bottom and look for the link “Hourly Weather Graph” under “Additional Forecasts and Information” (or click the colorful “Hourly Weather Graph” at right).
4. On the resulting page, there will be a graph, but it will be a hot mess full of stuff you don’t care about. Stuff like dew point and wind direction. Bad defaults. Uncheck everything except:

• Predicted temperature
• Precipitation potential
• Rain
• Snow

5. Season to taste.
6. Save the resulting URL. Add it to your bookmarks toolbar. Make it your homepage. We have.

The link we use here in New York City is:

http://forecast.weather.gov/MapClick.php?w0=t&w5=pop&w7=rain&w9=snow&AheadHour=0&Submit=Submit&&FcstType=graphical&textField1=40.77664&textField2=-73.95215&site=all

Or, as a link: http://1.usa.gov/1ELoek6

Note that you can just steal our link and replace “40.77664” with your latitude and “-73.95215” with your longitude, and it should just work inside the US.

If you don’t know your latitude or longitude, just go to Google or Bing and type “Los Angeles, CA latitude longitude” (or whatever) and it will show it to you. Note that “100 West” would be written as “-100” in the URL.

Enjoy your no nonsense, accurate, short term, localized weather forecast.

PUTTING VEGGIES ON THE PLATE MEANS MANY GET THROWN AWAY

We saw in our last posts that using double sided printing and cover sheets by default saves a lot of paper. This week we see a case in which defaults are effective, but have a costly drawback. Abstract says it all.

REFERENCE
Just, David &amp Joseph Price (2013). Default options, incentives and food choices: evidence from elementary-school children. PUBLIC HEALTH NUTRITION, 16 (12):2281-2288.

ABSTRACT
Objective: To examine whether requiring children to place fruits and vegetables on their lunch trays increases consumption of these items. Design: Observational study that exploited naturally occurring variation between two school districts and a pre-post observational study at schools that changed their lunch policy mid-year.

Setting: Fifteen elementary schools from two school districts, one requiring students to place a fruit or vegetable on their tray and one that does not. In addition, three schools that implemented a default option part way through the school year.

Subjects: Students at eighteen elementary schools (41,374 child-day observations) across the two experiments.

Results: Requiring that fruits and vegetables be placed on each child’s tray increased the fraction of children who ate a serving of fruits or vegetables by 8 percentage points (P < 0.01) but led to an extra 0.7 servings being thrown away per lunch served (P < 0.01). The default option approach cost $US 1.72 to get one additional child to eat one serving of fruits and vegetables for 1 d. However, when default options were combined with a small rewards programme the efficacy of both interventions increased.

Conclusions: A default option, as a stand-alone programme, had only a limited impact on fruit and vegetable consumption but was much less cost-effective than other approaches. Schools requiring children to take fruits and vegetables with their lunch might consider adopting additional interventions to ensure that the additional items served do not end up being thrown away.

MANY THEORIES

One of the DSN editor’s cover sheets of staggering genius

Last week, we wrote about how setting printers to print double-sided by default saves paper. Kind of a no brainer. But we ended with a “counterintuitive coda” about how cover pages save paper. Counterintuitively, we were inundated with emails about the coda and none about the main finding. People wanted to know “How much paper did the cover sheets save?”, “Why does it work?” and so on.

HOW MUCH PAPER DOES IT SAVE?
According to a blurb by Microsoft IT “Our internal studies have shown that when banner pages are disabled, print volumes increase 15% to 17%”. That’s a big effect: That means you’re wasting a ream of paper every 6 reams you print. Interestingly, it’s quite close the paper savings associated with making double-sided printing the default (doubled sided: 15% decrease in paper consumption; cover pages:13-15% decrease).

WHY DOES IT SAVE PAPER?
Microsoft IT says it’s “because people end up picking up print jobs that don’t belong to them. When this occurs, missing print jobs are reprinted, which wastes time and money.”

While that sounds reasonable, we can imagine (with help from some comments from readers) some other reasons it might work. Here’s a running list of possibilities. Happy to add more if people think of them.

WHY COVER PAGES MIGHT SAVE PAPER

• Without cover pages, people pick up print jobs that don’t belong to them, causing reprinting (as mentioned)
• Without cover pages, orphaned print jobs left in the printer are thrown away instead of returned to their owners
• With cover pages, the threat of public shaming gives people an incentive not to forget to pick up print jobs
• With cover pages, the threat of public shaming makes people embarrassed about printing large jobs (or many jobs) in the first place
• With cover pages, people are less likely to print one page when they realize that one cover sheet will be wasted by doing so

Note that the cover sheet is simply a default here, and can be switched off for any one job as desired.

All this talk of counterintuitive effects reminds us of a recent talk by a member of the UK’s Behavioral Insights Team (Nudge Unit). In the presentation, the member showed several versions of a form letter and asked the researchers in the room to guess which one had the biggest impact. The letter the researchers guessed would have the largest effect turned out to have one of the smallest impacts. Admittedly, the effect sizes were small, but it showed the importance of randomized experimentation and going beyond armchair theorizing in behavioral economics.