18 September 2012

Just leave it like that

Making a choice is sometimes a hard thing to do. Yes making a choice between two obvious options such as “coffee and beer for breakfast” is not very hard because there is one clear advantage (energy) of one over the other in the given situation (breakfast). At the same time, not all choices are as easy as coffee vs. beer in the morning. In many cases people simply have no clue of what the options in a choice set are. For example for most Europeans there is very little difference (due to lack of information) between a trip to Brisbane and one to Melbourne. What to choose in this case?

Lack of information or just ambiguity is present in choices that are much closer than Brisbane or Melbourne. Take the classical example of organ donation. In essence very few people have and express a clear preference (making a choice) between being or not an organ donor. One key element here is that being an organ donor happens only after the individual’s (cerebral) death. So in the end who cares about being an organ donor since he or she will be dead at that time? But apart for being dead at the moment of actually becoming an organ donor, there are many more elements of ambiguity in this decision such as what does it imply during the life of the individual. Moreover, what is the urgency? Most people, not even the ones that want to get to Heaven, don’t want to die and even fewer think actively about their death. “So Why Hurry? There will be time to do it later.“

Lack of information can take the form of unfamiliarity in the sense of not knowing what’s right or even what criteria to use in evaluating what is right. Take investment plans as an example. The “average Hans” has no idea what is what in the description and in case of making a choice will use some very simple rule of thumb (or Heuristic in a more sophisticated language) such as take the cheapest or the one with the lowest monthly payment.

Another example is invitations to connect on social networks or motivation letters when applying for jobs. By the way, does anyone read the motivation letter attached to a job application??? Now Really? Does anyone read that for any other purpose than making fun of the author? Coming back to not knowing what is appropriate… what is appropriate to write in an invitation or motivation letter? One simple answer would be nothing since if I’m asking someone to connect with me, it is clear what I want to do. Similarly my motivation for applying to a job is that I want that job. But is that fully appropriate? Is it really appropriate to give such a blunt motivation? Or should there be some nice (buzz) words inserted here and there? If so, Which Buzz Words and how to phrase them?

In all the cases mentioned above and many more, some clever (or simply lucky) people have identified what is called the “default option effect”. The default option effect implies the existence of one option that is pre-selected as a default. For example it can be “coffee” in the choice set of beer vs. coffee for breakfast. But this is rather obvious since any reasonable person would consider that most people would choose coffee regardless of which of them is the default.

The default option effect is very powerful in situations where there’s ambiguity. There is data on organ donation that shows how powerful the default option effect is. In countries where the default is NOT to be an organ donor, around 10-20% of people become organ donors. At the same time, in countries where the default option is to BE an organ donor, the number of people who are organ donors is above 95% of the population. In both cases switching from the default option is relatively easy – filling in a form and sending it to the “health authority”. 

Even if the required effort is minimal, most people never switch from the default option. Some might consider that there’s more to country differences than the simple preselected default option. But think of Austria and Germany. They are not very different from a cultural point of view (not to say that there is no difference, but the existing differences are small). At the same time, the difference in enrollment in organ donation is huge with Germany between 10-20% and Austria with more than 90% of the population. The minor cultural differences between Austria and Germany can’t account for the huge difference in enrollment in organ donation.

But let’s leave the organ donation area and go to some examples that are more common. How many times did you change the Linkedin default message when inviting someone to connect? Most likely your answer is below the number of fingers you have. Changing the default message is not that hard and it takes less than 2 minutes to write a nice personalized message. But it’s much easier to “Just leave it like that”.

Remember a few years ago that most subscribing to newsletters had a “yes” default? Soon after doing some form filling, one would end up being subscribed at 30 newsletters. Regulators (firs in the US and then in the EU) said that it should be the other way around, that the default should be “no” and if the person wants to subscribe then he or she should make an active choice. Guess what! Only about 20% of people did in fact actively subscribe to the newsletters.

Up to now, I’ve told you how the default option effect functions. Now let’s turn our attention to why it works. Economists would say that the cost of changing the default option is higher than the benefit obtained through changing to a different option. Now, that makes a lot of sense for some people (yes, economists are people too) but defies common sense. In the case of organ donation the benefit of being or not being an organ donor is relatively difficult to assess, while the effort of filling in a form and mailing it could be for some people with very lucrative professions very high. But let’s use the example of “default subscribing” to newsletters. Is the effort of “one click” higher than the discomfort of receiving unwanted e-mails for years to come? For sure, not even the most convinced economist would be able to justify the high cost of one click.

Another explanation could be that people imply a certain (expert)  recommendation when seeing an option predefined as default. This comes into play especially in choices of very unfamiliar “quasi-technical” options. In the example of choosing an investment plan the “Average Hans” could be thinking that “if someone who knows about this complicated thing says that this – default option – is good, then he or she must know what they are talking about”. Similarly with the social network default invitation text or the default motivation letter for job application, the person using it could think that “If this is what they recommend, then it should be good”.

A more simple explanation is that people simply don’t notice or don’t care too much of a certain choice and simply “leave it like that”. “What do I care if I’m an organ donor or not since at the moment I’ll be dead”.

In some situations, the default option is set with the best intentions for the public or for the consumer. Examples of these “good default options” are the ones with no default subscription to e-mails, with the minimum contribution to a pension plan higher than the minimum required by law and even the default message for inviting someone to connect on Liknedin. The key of the “good default” is that the designer of the decision environment (or choice set) has a similar interest with your own. Consumer protection regulators (should) take the side of the consumers and protect their interests. Linkedin or other social networks gain value by creating highly inter-connected networks which is in a way what you want at least when inviting someone to connect. In other words, both the users and the network have the common goal of creating a connection.

In other situations, the default option is not set entirely in good faith. I’m not suggesting that the person designing the decision environment (choice set) aims at making people making bad choices. What I’m saying is that the designer might only follow his or her (or the firm’s) own interest and that this interest is not necessarily the same as the one of the person making a choice. Let me give you a brief example. Imagine that you need to buy a product, but you don’t know which one is appropriate. The seller will want to sell you the product with the highest margin (profit for him) but you don’t want to buy what is most profitable for the vendor, you want to buy what is good for you. In this case the designer of the choice set will be the seller which will follow his own interest.   

The default option is a very powerful decision design tool and as any tool it can be used in various ways.

Next time when you feel like saying “Leave it like that” maybe it would be good to stop and think some more.

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