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Default effects, transaction costs, and imperfect information

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

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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File URL: http://www.sciencedirect.com/science/article/pii/S0165176513000839
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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
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. 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.
  2. 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.
  3. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2009. "Optimal Defaults and Active Decisions," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1639-1674, November.
  4. Stefano DellaVigna, 2007. "Psychology and Economics: Evidence from the Field," NBER Working Papers 13420, National Bureau of Economic Research, Inc.
  5. 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.
  6. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
  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. 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.
  9. Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
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