default bias crossroads

Know Your Nuggets: Default Bias

bob_sullivan
Bob Sullivan
Writer

Editor’s note: When deciding what to publish today, I could have researched and crowd-sourced and drafted and re-drafted a cutting-edge piece on breaking scientific discoveries which have never before been presented to our audience in any context … Instead, I just plugged in what was already planned: Another awesome Know Your Nuggets piece. I took the default option. (Stay tuned for the cutting edge thing… soon.)

 

Moving stinks.

There's all the packing, the unpacking, the carrying up and down stairs, the hassling friends, the lost timeand the FEES. You always lose money moving. I'll bet the mere mention of the word "moving" makes you feel a bit queasy. I sometimes get ill just passing U-Haul trucks on the highway. That's why, even if someone said you could save $100 a month and have a slightly bigger place, you probably would rather stay put.

Rationally, someone might argue that the "switching costs" suggest moving is not worth it. But really, you know the truth: It's just easier to stay put. To stick with the status quo. Go with the flow. Pick a Saturday on the couch over a Saturday with moving boxes. Take the default option. That's human nature.

Take the default option. That's human nature.

The phenomenon is known as "default bias," and it basically means humans tend to accept what we are given and stick with what we have. While doing nothing can be a valid choice, people miss out on a lot because they are wired to "stay put." If you understand default bias, you can use this tremendous force to your advantage, and you can overcome it when that’s the right thing to do.

Status quo bias – another name for default bias – is a big deal. Some behavioral scientists argue that the "discovery" of this tendency to stick with defaults is the most important contribution from their field of study. It's an easy case to make, as small changes in defaults have made huge changes in human behavior. The classic default experiment involves participation in retirement plans, a behavioral implementation so successful you probably know about it: When firms enroll workers in 401(k) plans by default, rather than requiring them to opt-in, participation rates nearly double.

 

If you understand default bias, you can use this tremendous force to your advantage.

Researchers blame default bias on plenty of factors. Laziness and inertia are obvious causes, as is procrastination. But more subtle factors are at play, too. Richard Thaler, in his book about the power of defaults, Nudge, placed some of the blame on loss aversion. His research suggests that people fear losses much more than they enjoy gains – by a ratio of 2:1. In other words, you'd have to win $200 to balance out the pain of losing $100. This emotional reaction makes people overly risk averse. How does that apply to defaults? When making any choice, there's always the chance things will go wrong. If you move, what if the neighbors aren't nice? What if the new place needs unexpected repairs? For the risk to be "worth it," the gain needs to be dramatic. You might not move to save $200 a month. You'd probably move to save $1,000 a month. Or for a pool, or a much shorter commute. (Editor’s note: Or to live next to a coffee shop that delivers, i.e. don’t edit midafternoon.)

To be fair, there are plenty of good reasons that people stick with defaults rather than make changes. Transaction costs, or switching costs, are quite real – especially if you live in a crazy real estate market like New York. Sometimes, people are paralyzed because they believe they lack the expertise to choose, which is also rational. If you aren't a building inspector, how would you know about potential future repair costs on that house?

But ultimately, sticking with a default is a choice, too, and many times, people stick with defaults as a form of "mindless choosing," as Thaler puts it. Gretchen Rubin, author of The Happiness Project, warns about a negative human tendency towards "drift." People stick with sub-optimal choices at jobs or in relationships, and days turn into weeks, then months. Years later, they wonder why their life seems so far off course. Like a freighter ship that made a small navigation error at the beginning of its journey, they are left wondering how they ended up where they are.

Our tendency toward default bias has the unfortunate quality of being even more powerful when decisions are more important. Scientists studying neural pathways have found that the more difficult the decision, the more likely people are to take the path of least resistance and stick with defaults.

Default bias has the unfortunate quality of being even more powerful when decisions are more important.

How can you combat drift, mindless choosing, and status quo bias?

Just knowing about your tendency to stay put gives you a chance to check that tendency. Many behaviorists recommend using a mind trick called the reversal test. Take whatever change is being considered – and feared – and then imagine its opposite. Doing so has a magical way of changing the nature of the debate.

For example: Say there was a way to increase longevity by 20 years, but some people were opposed to it because they fear overpopulation. Someone employing the reversal test would suggest, “What if we reduced longevity by 20 years? Would that be a better outcome?” Doing so forces the longevity skeptic away from the assumption that the status quo is actually better.

As a company, make good choices the default.

Taking that idea a bit further, a set of business school professors recommended an intriguing method called Enhanced Active Choice in a 2011 paper published in the Journal of Consumer Psychology. When giving consumers or employees options, the phrasing of the options – including “do nothing” – should include the downside.

Their experiment showed that more employees took advantage of a $50 bonus to get a flu shot when the choice was phrased like this: “I will get a flu shot this fall to reduce my risk of getting the flu and I want to save $50” or “I will not get a flu shot this fall even if it means I may increase my risk of getting the flu, and I don't want to save $50.”

We can also find ways use default bias to your advantage. Put the fruit on the kitchen table and the cookies on a high shelf in the cupboard. Set up automated bill pay to "pay yourself first" by putting money into savings each moth. As a company, make good choices the default for workers. Make bottled water easier to grab than soda in the breakroom. Perhaps more important, always make clear with every choice that change is risky, but so, too, is staying put.

bob_sullivan
Bob Sullivan
Writer

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