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Default effects, transaction costs, and imperfect information

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  • Wilson, Chris M.
  • Garrod, Luke
  • Munro, Alistair

Abstract

We develop a decision framework with imperfect information to analyze the effects of transaction costs on the tendency for individuals to remain with a default option. We demonstrate how transaction costs can be a more important source of such default effects than commonly thought. A further, potentially surprising result shows that transaction costs are able to explain why some forms of default effects increase with the number of options.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 119 (2013)
Issue (Month): 2 ()
Pages: 213-215

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Handle: RePEc:eee:ecolet:v:119:y:2013:i:2:p:213-215

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Default effect; Transaction cost; Imperfect information;

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  1. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-72, June.
  2. Munro, Alistair & Sugden, Robert, 2003. "On the theory of reference-dependent preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 407-428, April.
  3. Dmitri Kuksov & J. Miguel Villas-Boas, 2010. "When More Alternatives Lead to Less Choice," Marketing Science, INFORMS, vol. 29(3), pages 507-524, 05-06.
  4. Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
  5. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2005. "Optimal Defaults and Active Decisions," NBER Working Papers 11074, National Bureau of Economic Research, Inc.
  6. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2003. "Optimal Defaults," American Economic Review, American Economic Association, vol. 93(2), pages 180-185, May.
  7. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
  8. Wilson, Chris M., 2012. "Market frictions: A unified model of search costs and switching costs," European Economic Review, Elsevier, vol. 56(6), pages 1070-1086.
  9. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November.
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Cited by:
  1. Dohmen, Thomas, 2014. "Behavioural Labour Economics: Advances and Future Directions," IZA Discussion Papers 8263, Institute for the Study of Labor (IZA).

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