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Choice or No Choice: What explains the Attractiveness of Default Options?

Author

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  • Maarten van Rooij
  • Federica Teppa

Abstract

The default option in individual decision making has proved to be a major attractor in a large number of situations, but we still have little information on the reasons why decision makers so often stick to the default choice. We have devised a new module for the Dutch DNB Household Survey to learn about default behavior and to discriminate between potential explanations. The main contributions of this paper are as follows. First, we identify potential explanations for default choices (including procrastination, inertia, illiteracy, obedience and regret aversion). Second, we provide empirical evidence on their relative importance in a large number of situations. Third, our survey data allow us to analyze the entire population distribution instead of selected groups (like workers, or students) and to control for a rich set of personal characteristics, as well as for labor market status, income, and wealth. Our findings confirm that the default choice plays a key role in individual decision making. Inaddition, we show that its relevance differs across domains: the default option attracts the majority of preferences in situations where the marginal disutility associated with postponing the decision is relatively low, or where the choice problem is increasingly complex. Moreover, we find that even though choice behavior is principally driven by different reasons across different situations overall procrastination and financial illiteracy provide the mostpowerful explanations for why people stick to the default.

Suggested Citation

  • Maarten van Rooij & Federica Teppa, 2008. "Choice or No Choice: What explains the Attractiveness of Default Options?," DNB Working Papers 165, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:165
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    File URL: https://www.dnb.nl/binaries/Working%20Paper%20165-2008_tcm46-168647.pdf
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    References listed on IDEAS

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    Cited by:

    1. Frank Erp & Niels Vermeer & Daniel Vuuren, 2014. "Non-financial Determinants of Retirement: A Literature Review," De Economist, Springer, vol. 162(2), pages 167-191, June.

    More about this item

    Keywords

    default options; individual preferences; individual decision making; behavioral economics; procrastination; financial literacy;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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