Incentives and Information as Driving Forces of Default Effects

Steffen Altmann, Armin Falk and Andreas Grunewald

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: The behavioral relevance of non-binding defaults is well established. While most research has focused on decision makers’ responses to a given default, we argue that this individual decision making perspective is incomplete. Instead, a comprehensive understanding of default effects requires to take account of the strategic interaction between default setters and decision makers. We analyze theoretically and empirically which defaults emerge in such interactions, and under which conditions defaults are behaviorally most relevant. Our analysis demonstrates that the alignment of interests between default setters and decision makers, as well as their relative level of information are key drivers of default effects. In particular, default effects are more pronounced if the interests of the default setter and decision makers are more closely aligned. Moreover, decision makers are more likely to follow default options the less they are privately informed about the relevant decision environment.

Keywords: Default Options; Behavioral Economics; Strategic Communication; Laboratory Experiment (search for similar items in EconPapers)
JEL-codes: C92 D03 D18 D83 (search for similar items in EconPapers)
Date: 2015-09-17
New Economics Papers: this item is included in nep-cbe, nep-cdm and nep-exp
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Incentives and Information as Driving Forces of Default Effects (2013)
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