Defaults have a powerful effect on behaviour because we are most likely to choose the option provided. For example, far more people are organ donors in countries where people need to opt-out than in countries where people need to opt-in.
Defaults can be an important lever to reduce the complexity and paralysis that can often come with financial decision-making. A prominent example of defaults comes from behavioural economist Richard Thaler. Working with a company, Thaler suggested they switch their employee retirement savings plan option to opt-out, as opposed to opt-in, and the company saw enrollment rates double. One small change can have a significant, positive impact on behaviour, especially in situations where the default behaviour – our inertia – is to not save or investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition.
Of course, there may be other situations where what would be desirable or preferable is not so clear—and where a default option may not be so clear. In cases like this, offering people active choice by removing the default might be a better option. Some research on program uptake and prescription renewals suggest that active choice making may have a stronger effect on behaviour than defaults because the former may nudge people to slow down and reflect on the importance of the choice, and create a greater sense of loss aversion (for not choosing), and perhaps a greater sense of responsibility to follow through.
Read more about active choice in our report, Encouraging Retirement Planning through Behavioural Insights.