Incentives and Information as Driving Forces of Default Effects

Arbeitspapier

The behavioral relevance of non-binding default options is well established. While most research has focused on decision makers' responses to a given default, we argue that this individual decision making perspective is incomplete. Instead, a comprehensive understanding of the foundation of default effects requires taking account of the strategic interaction between default setters and decision makers. We provide a theoretical framework to analyze which default options arise in such interactions, and which defaults are more likely to affect behavior. The key drivers are the relative level of information of default setters and decision makers, and their alignment of interests. We show that default effects are more pronounced if interests of the default setter and decision makers are more closely aligned. Moreover, decision makers are more likely to follow default options the less they are privately informed about the relevant decision environment. In the second part of the paper we experimentally test the main predictions of the model. We report evidence that both the alignment of interests as well as the relative level of information are key determinants of default effects. An important policy relevant conclusion is that potential distortions arising from default options are unlikely if decision makers are either well-informed or reflect on the interests of default setters.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 7610

Classification and Topics

• Classification: Wirtschaft ; Consumer Protection ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Design of Experiments: Laboratory, Group Behavior
• Subject: default options ; libertarian paternalism ; behavioral economics ; incentives ; laboratory experiment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Altmann, Steffen ; Falk, Armin ; Grunewald, Andreas
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/90086
• Last update: 10.03.2025, 11:43 AM CET