How to choose a default

Abstract

We have developed a model for setting a default when a population is choosing among ordered choices—that is, ones listed in ascending or descending order. A company, for instance, might want to set a default contribution rate that will increase employees’ average contributions to a retirement savings plan. A key input of the model is the distribution of latent options—the percentages of a population that select each available choice in the absence of a preset default. The model treats the default as an attraction point that causes some people to shift from their latent preference toward the default. It specifies the strength of each possible default's pull on each latent option and thereby points policymakers to the default most likely to achieve a desired aim. We tested our model using data from field experiments relating to retirement savings. In addition to presenting the results, which support the model's validity, we discuss how the model relates to prior empirical evidence on defaults.