IDEAS home Printed from https://ideas.repec.org/p/ngi/dpaper/12-16.html

Default Effects, Transaction Costs, and Imperfect Information

Author

Listed:
  • Chris M. Wilson

    (School of Business and Economics)

  • Luke Garrod

    (School of Business and Economics)

  • Alistair Munro

    (National Graduate Institute for Policy Studies)

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.

Suggested Citation

  • Chris M. Wilson & Luke Garrod & Alistair Munro, 2012. "Default Effects, Transaction Costs, and Imperfect Information," GRIPS Discussion Papers 12-16, National Graduate Institute for Policy Studies.
    • Handle: RePEc:ngi:dpaper:12-16
    as

    Download full text from publisher

    File URL: https://grips.repo.nii.ac.jp/?action=repository_action_common_download&item_id=1103&item_no=1&attribute_id=20&file_no=1
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gabriel D. Carroll & James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2009. "Optimal Defaults and Active Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1639-1674.
    2. 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.
    3. Samuelson, William & Zeckhauser, Richard, 1988. "Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    4. 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.
    5. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1149-1187.
    6. 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.
    7. 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.
    8. Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
    9. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Catherine Waddams Price & Catherine Webster & Minyan Zhu, 2013. "Searching and Switching: Empirical estimates of consumer behaviour in regulated markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2013-11, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    3. Dohmen, Thomas, 2014. "Behavioral labor economics: Advances and future directions," Labour Economics, Elsevier, vol. 30(C), pages 71-85.
    4. Mark Harcourt & Gregor Gall & Margaret Wilson & Korey Rubenstein, 2022. "The potential of a union default to influence the preferences and choices of non-union workers in unionised workplaces," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 43(4), pages 1817-1841, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Egebark, Johan & Ekström, Mathias, 2016. "Can indifference make the world greener?," Journal of Environmental Economics and Management, Elsevier, vol. 76(C), pages 1-13.
    2. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    3. Mitchell, O.S. & Piggott, J., 2016. "Workplace-Linked Pensions for an Aging Demographic," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 865-904, Elsevier.
    4. Damgaard, Mette Trier & Nielsen, Helena Skyt, 2018. "Nudging in education," Economics of Education Review, Elsevier, vol. 64(C), pages 313-342.
    5. Nobel Prize Committee, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    6. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    7. Daniele Pennesi, 2013. "Endogenous Status Quo," Carlo Alberto Notebooks 314, Collegio Carlo Alberto.
    8. Døskeland, Trond & Martuza, Jareef Bin & Pedersen, Lars Jacob Tynes & Santos, Francisco & Sjåstad, Hallgeir & Thorbjørnsen, Helge, 2025. "The role of social norms in retirement saving: Evidence from two natural field experiments," Journal of Business Research, Elsevier, vol. 190(C).
    9. Abadie, Alberto & Gay, Sebastien, 2006. "The impact of presumed consent legislation on cadaveric organ donation: A cross-country study," Journal of Health Economics, Elsevier, vol. 25(4), pages 599-620, July.
    10. Choi, James J. & Haisley, Emily & Kurkoski, Jennifer & Massey, Cade, 2017. "Small cues change savings choices," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 378-395.
    11. Kuchler, Theresa & Pagel, Michaela, 2021. "Sticking to your plan: The role of present bias for credit card paydown," Journal of Financial Economics, Elsevier, vol. 139(2), pages 359-388.
    12. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    13. Katharina Momsen & Sebastian O. Schneider, 2022. "Motivated Reasoning, Information Avoidance, and Default Bias," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2022_03, Max Planck Institute for Research on Collective Goods.
    14. Vincent Somville & Lore Vandewalle, 2018. "Saving by Default: Evidence from a Field Experiment in Rural India," American Economic Journal: Applied Economics, American Economic Association, vol. 10(3), pages 39-66, July.
    15. Akshay Shanker & Sacha Vidler, 2014. "Offsets to Compulsory Superannuation: Do People Consciously Choose Their Level of Retirement Saving?," CAMA Working Papers 2014-65, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    16. Keys, Benjamin J. & Wang, Jialan, 2019. "Minimum payments and debt paydown in consumer credit cards," Journal of Financial Economics, Elsevier, vol. 131(3), pages 528-548.
    17. Guney, Begum & Richter, Michael, 2018. "Costly switching from a status quo," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 55-70.
    18. Giné, Xavier & Goldberg, Jessica, 2023. "Experience in financial decision-making: Field evidence from Malawi," Journal of Development Economics, Elsevier, vol. 161(C).
    19. Dolan, P. & Hallsworth, M. & Halpern, D. & King, D. & Metcalfe, R. & Vlaev, I., 2012. "Influencing behaviour: The mindspace way," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 264-277.
    20. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C., 2011. "Behavioral economics perspectives on public sector pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 315-336, April.

    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ngi:dpaper:12-16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge The email address of this maintainer does not seem to be valid anymore. Please ask the person in charge to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/gripsjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.