Think of the last time you walked into a shopping mall. Did you turn right after entering? Did you head straight to the store that you intended to go to, or did you stop at other stores along the way? Did you buy something you were not planning on buying?
A whole series of decisions made by the designers of the mall probably influenced what you did on entering the mall and the products you encountered while you were in the mall. We normally don’t pay attention to how decisions made by others, such as mall designers, influence our own shopping behaviour. Behavioural scientists Richard Thaler and Cass Sun explain in their recent book, Nudge, how people who design systems for other people have a significant responsibility to think about how their systems will influence the choices made by the users of their system.
When most people encounter even minimally complex systems that offer them a default option, they simply go with the default. As we discussed in an earlier column, for most decisions, we do not go through the trouble of evaluating every option and making the most optimal choice. This could be because we don’t have the time, inclination or ability to evaluate all the options. But the moment we make the decision to simply go with the default choice, we are allowing our decision to be made by someone else — the designer of the system who chose the parameters of the default option. Knowing that most people will choose the default option, it is the responsibility of the designer to design it in a way that the default option serves the needs of most users.
Nowhere was the importance of the default option made more vivid than when Sweden partially privatized its social security system (similar to a public pension system) in 2000, allowing citizens to create their retirement investment portfolio either by choosing from a vast array of options or for those who didn’t want to put together such a portfolio, to go with a default portfolio option. Even after a major advertising blitz about the set of choices available, less than 10% of new enrollers put together their own portfolio from the hundreds of available funds. Most just went with the default option. This is where it becomes particularly important to make sure that the default portfolio is carefully designed to be an excellent choice for all those people who didn’t bother to design their own portfolio of funds. At the same time, for those who wanted to put in the time and effort to evaluate multiple options, the array of fund options still existed.
Thaler, of the University of Chicago, calls this approach “libertarian paternalism” and argues for leaving people with choices, but putting more thought into designing the default choice that we know from research will be the option chosen by a disproportionately large number of people. This approach has implications for everyone, from product designers and marketing communications specialists to managers and chief executive officers.
From a managerial perspective, it means not just spending time designing a system so that employees and customers have a lot of choices, but carefully thinking of the best “default” option so that it would be a good choice for most. In one successful application of this principle, an American organization that was having trouble convincing employees to choose to save a portion of their income simply changed the default for retirement savings for new employees from “opt-in” to “opt-out”. Instead of setting the default saving amount to zero, it was changed to a fixed percentage of the income. All employees retained the right to stop contributing to their retirement accounts but if they took no action, a percentage of their income was automatically placed in the retirement plan by default. Not surprisingly, participation in retirement savings account rose dramatically as a result of this change.
Managers should also consider the importance of default when they design products. Understanding that a large percentage of users will be operating the product in its default mode will help you design a better experience for the average user. The default option helps define the product usage experience for a significant proportion of your users. Many users may never explore the full versatility of your product. Given how powerful the default option is in the marketplace, you want to make sure that the default option includes the major highlights of your offering.
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Praveen Aggarwal is an associate professor of marketing at the Labovitz School of Business & Economics at the University of Minnesota Duluth and Rajiv Vaidyanathan is a professor of marketing and director of MBA programmes at the same university.