SL Defaults/ Active Choice (Facilitate)

Question 1

What is a defaults/active choice nudge?

Answer 1

A default/active choice nudge is a strategy used to guide people’s
decisions by setting one option as the default or requiring them to make
an explicit choice.
o Default nudges gives people a pre-selected choice option – a ‘default’ - making
them more likely to choose this option
- Examples: Organdonation.
o Active choice nudge individuals are prompted to make a deliberate decision without a default option
- Example of an active choice: When enrolling in a 401(k) retirement savings plan, employees may be required to actively choose whether to participate rather than being automatically enrolled. They must explicitly select “yes” or “no”, ensuring conscious decision-making.

Question 2

What bias heuristic does defaults/active choice address?

Answer 2

Status Quo Bias: This nudge leverages status quo bias, where
people have a tendency to stick with the current or default state
rather than changing to an alternative.
* Inertia: It also takes advantage of inertia, meaning that individuals
are often reluctant to take action, particularly if the decision requires
effort or deliberation.
* Loss Aversion: Many people feel a sense of loss or discomfort when
considering giving up something they already have (even if they
didn’t actively choose it), so they may stick with the default option.

Question 3

How does default/ active choice work to change behavior (mechanism)?

Answer 3

Effort Reduction:
Simplifies decision-making by requiring no action

Decision Simplification:
Defaults guide choice, especially when options are complex.

Perceived Endorsement:
Defaults imply the preferred or recommended choice.

Question 4

Where do we find them in the refine matrix?

Answer 4

Facilitate

• Active choices encourages
  behavior change subtly,
  without limiting freedom of
  choice.
• Default choices make it easy
  to follow a preferred option
  with minimal effort

Question 5

Defaults/active choice nudges doesn’t work when:

Answer 5

Examples when it doesn’t work
* When individuals have strong preferences (e.g., dietary, ethical).
* In unfamiliar or high-stakes decisions (e.g., financial investments).
* When trust in the choice-setter is low.

Why doesn’t it work in these cases?
* Strong preferences lead people to override defaults.
* High-stakes decisions prompt careful, active choices.
* Low trust reduces the perceived reliability of the default.

What effect sizes should we expect?
* Effectiveness varies widely but is typically stronger for routine or low-stakes decisions;
weak or negligible effects are more likely for complex or personal decisions.

Question 6

Tips for implementation

Answer 6

• Case 1: Default nudges can affect consumers even in habitually consumer choices. However, potential costs of setting defaults too
  high must be considered when designing the nudge and implementation hereof
• Case 2: Experience-based approaches to encourage savings are more effective than rational arguments, especially in developing
  countries
• Case 3: Combine nudges with realistic payment options to avoid missed payments

Question 7

Haggag, Kareem, and Giovanni Paci. “Default tips.”

a) Outline the research question and the design of the paper.

b) Using figure 20 describe the results

c) Are there any no clear evidence of the driver of the effect?

Answer 7

Question a)

Examine the role of
increases in default tip suggestions on tip amounts in New York City taxi rides

Design:

Natural experiment: Tip information
for credit card transactions of a sample of 13 million rides in 2009. Customers were presented with either an option to
manually type their desired tip amount, or to press one of three buttons with a default tip suggestion. They then created different combinations of low defaults, higher defaults and different manuals (active choice).

Question b)

Results:

An upward shift in the set of
suggestions induces higher
average tip amounts

Higher default suggestions
lowers the number of
people using default tips. There is a potential cost of
setting defaults too high

Question c)

Informed customers:
Customers are rationally inattentive and fail to compute their preferred tip
- Time costs are too high
- Cognitive effort is too high

Uninformed customers
Customers are unfamiliar with the tipping norm
- Interpret defaults as the social endorsed norm

All customers
Customers feels disutility from deviating from status quo
- Social pressure
- Psychological resistance

Question 8

*Blumenstock, J., Callen, M., & Ghani, T. (2018). Why do defaults affect behavior?
Experimental evidence from Afghanistan.

a) Outline the research question and the design of the paper.

b) Using figure 21 describe the results

Answer 8

Question a)

Examine why default options impact behavior

Design:

Field experiment: the researchers took advantage of the launch of a new phone-based savings account in Afghanistan

The experiment was in 2 stages:
1. The first tests the impact of defaults effect in developing country and introduce a comparison to
financial incentives
The first stage
* 949 employees were randomly assigned to have either 0% or 5% of their
salary automatically directed to the savings account.
* Separately, each employee was randomly assigned a financial incentive to
save, (⅓, 50% match, ⅓, 25% match, ⅓, 0% match)

2. The second is a series of interventions designed to differentiate between the underlying reasons for the default effect
   * The researchers implemented a series of interventions to test 5 different
   explanations for the default effect.
   * The relevant reason is that because changing defaults involves some immediate
   cognitive costs with delayed benefits, individuals may not switch their default,
   particularly if they are present-biased.

Question b)

Results:

The first stage
* Significant impact - employees randomly assigned a default of 5% were 40
percentage points more likely to contribute to the account
* Comparison - Default assignment increases participation by roughly the same amount
as a 50% match on employee contributions
* Long term effect - after the experiment concluded, 45% of employees actively elected
to contribute, with participation 25% higher in the 5% group

The second stage:
* Present-Bias preferences - The researches elicited measures of present-bias and
found that present-biased employees were significantly more likely to remain at their
default assignment
* Cognitive cost - Out of several interventions which were designed to encourage
employees to choose (active choice) a non-default contribution rate - the only one that proved effective was to offer employees support with calculating how much money they
would save under different contribution scenarios.

conclusion and discussion

• The general results strengthen the existing literature about the default effect and
  broaden it to poor countries. The first to empirically compare the “price” of default
  relative to financial incentives.
• Default effects in savings persist because employees face significant cognitive costs
  associated with identifying their optimal contribution rate, and that this cost, together
  with present-biased preferences, creates procrastination.
• Experience changed the attitude: It is crucial to encourage people to save through
  experience and not just by rational arguments, especially in developing countries.
• Rise in mobile use and salary workers in developing countries – the above findings can
  help improve the savings rate among populations who doesn’t have an interaction with
  the formal financial system

Question 9

Guttman-Kenney, B., Adams, P. D., Hunt, S., Laibson, D., Stewart, N., & Leary, J. (2023).
The semblance of success in nudging consumers to pay down credit card debt

a) Outline the research question and the design of the paper.

b) Describe the results

c) Why was it ineffective?

Answer 9

Question a)

Reduce credit card debt by
encouraging users to set up automatic
payments above the minimum due
amount.

Design:

Control vs. Treatment:
* Control group saw all three autopay
options – Minimum, Fixed or Full.
* Treatment group only saw the autopay
options Fix and Full.
* Anchoring Bias: Reduce anchoring at the minimum amount → Select an
amount actively, hopefully above the
minimum.

Question b)

Result:

The nudge changes autopay choices but fails to reduce debt

Changes in Autopay Choices
1. Reduced autopay min enrollment: The treatment
group showed a 74% reduction in choosing Autopay
Min.
2. Increased autopay fix enrollment: There was a 73%
increase in Autopay Fix enrollment, suggesting a shift
in preference towards fixed payments.
3. Minor change in autopay full: A slight increase in
Autopay Full enrollments was observed.

Increased Autopay Fix Enrollment
1. No significant debt reduction: Despite changes in
autopay enrollment, the nudge did not result in a meaningful decrease in overall credit card debt after
seven cycles.
2. Increase in missed payments: The nudge inadvertently caused some consumers to opt out of
autopay entirely, leading to a higher rate of missed
payments.

Question c)

• Low fixed payment choices
  Most users who chose autopay fix set it just above
  the minimum, leading to only minimal debt
  reduction.
• Reduced autopay enrollment
  The nudge led some consumers to avoid autopay,
  resulting in more missed payments.
• Reduced manual payments
  Consumers enrolled in autopay fix made fewer
  additional manual payments, reducing the potential
  for higher repayment amounts.