A POSSIBLE DOWNSIDE OF ''NUDGE'' POLICIES: People may come to rely on default options too much

01 May 2018

The popularity of ''nudge'' policies, which use people''s psychological biases to steer them towards better choice, has a potential side effect.

Experimental research by Thomas de Haan and Jona Linde, published in the May 2018 issue of the Economic Journal, shows that people might come to rely on being nudged, leading to possibly worse decisions when they are left to their own devices. The experiment shows that people continue to rely on default options that used to be good, even if the nature of the default changes.

Situations where the nature of a default option changes over time can occur in real life. A change in the ideological make-up of a government or a legal challenge may end programmes that present people with carefully selected default options. As a result, people who got used to good defaults may suddenly face random defaults. This can relate to decisions with major effects on people''s lives – for example, default pension savings or default health insurance plans.

Companies could also use consumers'' reliance on a good default to trick them. For example, when buying an airline ticket online, you might first be presented with good defaults: cheap flights and fast, direct routes. But these could be followed by more questionable defaults, such as cancellation insurance or additional services that most customers do not really need.

In the researchers'' experiment, they expose participants to the common nudge of a good default option. People choose between different options in 50 choice dilemmas with which they are presented. One of these options is presented as the default: this option is pre-selected and becomes a participant''s choice if he or she does not make an active decision.

In the first 25 choice dilemmas, the default option equals the objectively best decision. The researchers then take away this good default and replace it with an unhelpful, random default.

The results show that participants who were nudged by the good default for the first 25 choice dilemmas were more likely to follow the default/recommended option in the last 25 choice dilemmas than a control group who were previously exposed to defaults of random (and on average mediocre) quality. As a result, nudged participants performed significantly worse in the last 25 choice dilemmas.

Observing how behaviour changes over time, the researchers find that when people experience good defaults, they start to choose the default more and more often, while this effect only fades away slowly when the default is no longer helpful. Providing people with feedback on the quality of their decisions leads to more default choices as people ''learn'' that the default brings good results.

But feedback does not appear to help people to realise more quickly that the default is no longer helpful. A behavioural choice model that includes choice errors inversely related to the cost of the error, a ''default-bias'' which is reinforced when a default is chosen, and learning about the relative value of default and non-default options when receiving feedback captures the patterns in the data to a high degree.

These results suggest that it is possible for the nature of defaults to influence behaviour beyond the choice situation at hand. More specifically, the tendency to follow a default option can be reinforced in a repeated choice setting.

The researchers conclude:

''To be clear, we do not see our experiment as providing an argument against nudging people. In fact, participants who received helpful defaults performed a lot better overall than control participants.''

''But we do believe our experiment shows that policy-makers should be careful when implementing a nudge. Our findings may also provide an argument to have a closer look at business practices intended to exploit the reinforcing effects of early defaults.''

Good Nudge Lullaby”: Choice Architecture and Default Bias Reinforcement'' by Thomas de Haan and Jona Linde Thomas de Haan is at the Norwegian School of Economics. Jona Linde is at Maastricht University.

Thomas de Haan

Thomas.deHaan@nhh.no

Jona Linde

jonalinde@gmail.com