Defaults, choice architecture, and choice overload Dan Goldstein Assistant Professor of Marketing London Business School

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Defaults, choice architecture, and choice
overloadDan GoldsteinAssistant Professor of
MarketingLondon Business School
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• Classical View
• Diagnosis People do not derive enough value from
  organ donation.
• Treatment Increase incentives.
• Psychology / Behavioral Economics
• Diagnosis People do not know whether they want
  to donate organs, they generate an answer when
  asked.
• Treatment
• Realize this is an unpleasant question and that
  there is a cost in making a decision.
• Ask questions in a way that gives the answer most
  people would if they thought about it at length.

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Organ Donation
Johnson Goldstein, 2003
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Constructed preferences
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• Donation rates per million
• Years 1991-2001
• Presumed vs. Explicit Consent
• Controls
• Transplant Centers per million
• Percent post-secondary education
• Percent Roman Catholic
• Result Defaults produce a 16 (Johnson and
  Goldstein), 25-30 (Abadie and Gay) to 50
  (Gimble et al.) increase in donations.

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The case for consumer protection
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Opt-out privacy
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With seat reservation Without seat reservation
With seat reservation Without seat reservation
40 Million
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2 Billion
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Possible Causes of Default Effects

• Effort / Inattention
• Loss Aversion / Endowment Effect
• Perceived Majority Preference
• Perceived Recommendation

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Recommendations
People are asked to choose investment funds and
allocate money to them.
___________ ___________ ___________ ___________
To select more funds click here
______________________________________________
__________________________________________
Big form
Small form
Heuristics and Biases in Retirement Savings
Behavior, Benartzi and Thaler (2006)
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(No Transcript)
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Positive influences of defaults
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Choice of Green Energy in a European City
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In a firm where new employees save nothing
towards their pension as a default 70 of
employees savednothing towards their own pension.
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Contribution levels when the default is 3
From The Importance of Default Options for
Retirement Saving Outcomes Evidence from the
United States by Beshears, Choi, Laibson
Madrian. Available online.
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Save More Tomorrow
Benartzi and Thaler, 2007
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Policies for setting defaults
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Rules for setting defaults

• Mass defaults
• Benign defaults
• Random defaults
• Hidden options
• Forced choice
• Personalized defaults
• Persistent defaults
• Smart defaults
• Adaptive defaults