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Knowing when to Quit: Default Choices, Demographics and Fraud

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  • Robert Letzler
  • Ryan Sandler
  • Ania Jaroszewicz
  • Isaac Knowles
  • Luke M. Olson

Abstract

We study defaults in a novel setting where the optimal choice is clear: the decision to escape from fraud. A government lawsuit created a natural experiment whereby some consumers enrolled in a fraudulent subscription programme were cancelled by default, while others had to cancel actively. We find that cancelling subscriptions by default increased cancellations to 99.8%, 63.4 percentage points more than requiring active cancellation. We also find that consumers residing in poorer, less†educated Census blocks were more likely than average to cancel prior to the lawsuit but were less likely to actively cancel when notified they could do so.

Suggested Citation

  • Robert Letzler & Ryan Sandler & Ania Jaroszewicz & Isaac Knowles & Luke M. Olson, 2017. "Knowing when to Quit: Default Choices, Demographics and Fraud," Economic Journal, Royal Economic Society, vol. 127(607), pages 2617-2640, December.
    • Handle: RePEc:wly:econjl:v:127:y:2017:i:607:p:2617-2640
    DOI: 10.1111/ecoj.12377
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    Cited by:

    1. Ghesla, Claus & Grieder, Manuel & Schubert, Renate, 2020. "Nudging the poor and the rich – A field study on the distributional effects of green electricity defaults," Energy Economics, Elsevier, vol. 86(C).
    2. Hagen, Johannes & Malisa, Amedeus, 2022. "Financial fraud and individual investment behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 593-626.
    3. Ornaghi, Carmine & Tonin, Mirco, 2018. "Water Tariffs and Consumers' Inaction," IZA Discussion Papers 11458, Institute of Labor Economics (IZA).
    4. Rita Abdel Sater, 2021. "Essays on the application of behavioural insights to environmental policy [Essais sur l’application des connaissances comportementales aux politiques environnementales]," SciencePo Working papers Main tel-03450909, HAL.
    5. Heiss, Florian & Ornaghi, Carmine & Tonin, Mirco, 2021. "Inattention vs switching costs: An analysis of consumers' inaction in choosing a water tariff," DICE Discussion Papers 366, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Byrne, David P. & Martin, Leslie A., 2021. "Consumer search and income inequality," International Journal of Industrial Organization, Elsevier, vol. 79(C).

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