Complexity and Smart Nudges with Inattentive Consumers

Stefania Sitzia, Jiwei Zheng and Daniel Zizzo
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Stefania Sitzia: CBESS and School of Economics, University of East Anglia
Jiwei Zheng: Centre for Competition Policy, CBESS and School of Economics, University of East Anglia

No 2012-13, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

Abstract: In an experiment on markets for services, we find that consumers are likely to stick to defaults and achieve suboptimal outcomes. We unpack two key psychological reasons why they do this – complexity (in terms of non-linearity, number and bundling of tariffs) and consumer inattention -. The complexity induced by product bundling, non-linearity and number of tariffs has an important role, but this is overstated if the explanatory power of inattention is neglected. We show that a ‘smart nudge’ policy of automatically switching default tariffs can be used to exploit inattention-based consumer inertia to achieve better consumer outcomes.

Keywords: complexity; inattention; defaults; warnings; nudges; services; energy (search for similar items in EconPapers)
JEL-codes: C91 D03 D04 L51 (search for similar items in EconPapers)
Date: 2012-11-01
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Citations: View citations in EconPapers (9)

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