What is economics if not for the study of decision making. So what happens when we are confronted with an overwhelming number of them? This is the reality of our world today, where we make approximately 35,000 decisions every day. From daily habits to complex judgment calls, we simply do not have the time and energy to fully evaluate each one.

Instead we too often rely on the pre-selected default options. These options are thoughtfully designed to feel like easy decisions, despite often not being in your best interest. Take for example a Netflix subscription or a retirement savings plan.

In behavioral economics, this became known as Choice Architecture or Nudge Theory to describe how carefully set default options are designed to encourage consumers toward a decision, without limiting any fundamental freedoms.

These defaults are often designed to benefit the average consumer. This framing was analyzed in a study done on default retirement savings plans. In this case, the default was changed to automatic enrollment into a savings plan. The effects of the study were clear, setting the default can potentially be very beneficial, with the retirement saving contribution rate seeing a large increase. In other words, the default was set to ‘nudge’ consumers into a positive outcome.
This level of control over choice environments also means assuming the responsibilities that come with. Businesses have been criticized for designing defaults that favors them, and disadvantages the consumer. A relevant example is automatically renewing subscriptions services that the consumer forgets about. Fortunately the Federal Trade Commission has put into place a Click to Cancel Rule, which requires sellers to make the cancellation of a subscription as easy to cancel and it was to subscribe.

Ultimately, pre-selected default options are undeniably effective, and can simplify decision making while still promoting beneficial outcomes. However, they can also be used as leverage for profit or manipulation like trapping consumers into unwanted subscriptions. The appropriate use of defaults lies in the responsibility of firms and policymakers to design them transparently and fairly. It’s important that this power of choice remains in the hands of the individual.








Work Cited

Annika Steele, “Nudge Theory” The Decision Lab
https://thedecisionlab.com/reference-guide/psychology/nudge-theory

Dan Pilat and Dr. Sekoul Krastev “Choice Architecture” The Decision Lab
http://thedecisionlab.com/reference-guide/psychology/choice-architecture

Jeremy Burke, Angela A. Hung, and Jill E. Luoto, “Opting out of Retirement Plan Default Settings” Sept 2016
https://www.dol.gov/sites/dolgov/files/ebsa/pdf_files/opting-out-of-retirement-plan-default-settings.pdf

“Federal Trade Commission Announces Final “Click-to-Cancel” Rule Making It Easier for Consumers to End Recurring Subscriptions and Memberships” Oct 16, 2024
Federal Trade Commission
https://www.ftc.gov/news-events/news/press-releases/2024/10/federal-trade-commission-announces-final-click-cancel-rule-making-it-easier-consumers-end-recurring