Topic 04 E Johnson 032708 - RAND · 2021. 8. 10. · Topic_04_E_Johnson_032708.ppt Author: Tyson...
16
Transcript of Topic 04 E Johnson 032708 - RAND · 2021. 8. 10. · Topic_04_E_Johnson_032708.ppt Author: Tyson...
Collaborators
Dan Goldstein
Jonathan Levav
Andreas Hermann
Mark Heitman
Oded Netzer
Olivier Toubia
Defaults Do Matter
In Public Policy: Johnson et al. (1993) Johnson and Goldstein(2003)
In Finance (Madrian and Shea, 2001)
In On-Line Commerce
In Privacy Policies
4.25
27.5
17.1712
99.98 98 99.91 99.997 99.5 99.64
85.9
0
10
20
30
40
50
60
70
80
90
100
Denmark
Netherlands
United
Kingdom
Germany
Austria
Belgium
France
Hungary
Poland
Portugal
Sweden
All Choices Have Defaults
Options:
Benign Defaults: Use what most People would Pick with NoDefault.
But the Default will be ‘Too’ Popular
Nudge Default: Pick what is Best for People
But what is best is not the same for everyone
Mandated Choice: Make people Respond
But decision-making is costly
SOMETIMES, CONSUMERS MAY NOT SAY WHAT IS BEST.
Alternatives
Smart Defaults: Pick what is best for each individual.
Pretty Smart Defaults: Segment then Default.
Adaptive Defaults: Use Early Choices to pick the right default.
Case Study German Large Auto Manufacturer
Auto Configuration
We can see the impact ofdefaults by looking at noDefault choices
Average Car Total withthis choice: €42,948
N=229Mandated
Choice
Case Study Large German Auto Manufacturer
Current Default: The leastexpensive.
Bad Idea:
For the firm: €42,472, aloss of €476 on theengine alone
For consumers: Theydon’t always pick thecheapest.25.6% get adifferent engine
CHEAPESTDEFAULT
Case Study Large German Auto Manufacturer
Better Idea?
For the firm: AverageChoice is €43,251(+€302)
For consumers: Not somuch, 51.2% get aDifferent Engine
BenignDefault
Smart Default
Limited application: Threekinds of engines.
We used characteristics topredict preferences.
Consider Mr. Cheap andMs. Fast.
What is the right default?
A Smarter Idea
Help WantedApplications to Financial Services.
Home Mortgages.
Difficult choice.
Clear demands for betterdecisions
Mortgage Applicationscontain much information
Can Smart Defaults help?
Life Insurance
Buying Life Insurance is an unpleasant decision.
The Correct Amount is relatively easy to calculate.
Should Employers discouraging buying Life insurance?
Alternative: Suggest a ‘smart’ default based on your income,those of your spouse, family size and wealth.
Employers are obvious helpers.
Remember a smart default is a suggestion
401(K): Can Smart Defaults Help?
Strong Evidence that Defaults work
But is a ‘One Size Fits All” Default the Best?
What Could be Done to Improve Defaults? What Variables?
How Much to Save: Age, Self and Spousal Savings,Income.
Where to Save: More Difficult, but Simple Defaults CouldHelp.
Smart(er) Defaults
• Eric J. Johnson
• Columbia Business School
• Columbia, University
