Deciding by default.

• Author: Sunstein, Cass R.
• Position: Use of administrative default rules to direct personal choice - Introduction through III. A Puzzle for Choice Architects: Which Default Rule? p. 1-47

Impersonal default rules, chosen by private or public institutions, establish settings and starting points for countless goods and activities--cell phones, rental car agreements, computers, savings plans, health insurance, websites, privacy, and much more. Some of these rules do a great deal of good, but others might be poorly chosen, perhaps because the choice architects who select them are insufficiently informed, perhaps because they are self-interested, perhaps because one size does not fit all. The existence of heterogeneity argues against impersonal default rules. The obvious alternative to impersonal default rules, of particular interest when individual situations are diverse, is active choosing, by which people are asked or required to make decisions on their own. The choice between impersonal default rules and active choosing depends largely on the costs of decisions and the costs of errors. If active choosing were required in all contexts, people would quickly be overwhelmed; default rules save a great deal of time, making it possible to make other choices and in that sense promoting autonomy. Especially in complex and unfamiliar areas, impersonal default rules have significant advantages. But where people prefer to choose, and where learning is both feasible and important, active choosing may be best, especially if people's situations are relevantly dissimilar. At the same time, it is increasingly possible for private and public institutions to produce highly personalized default rules, which reduce the problems with one-size-fits-all defaults. In principle, personalized default rules could be designed for every individual in the relevant population. Collection of the information that would allow accurate personalization might be burdensome and expensive, and might also raise serious questions about privacy. But at least when choice architects can be trusted, personalized default rules offer most (not all) of the advantages of active choosing without the disadvantages.

INTRODUCTION I. WHY DO DEFAULT RULES STICK? A. The Remarkable Power of Defaults 1. Bean Sprout and Soy Cheese Sandwiches 2. Insurance 3. Privacy 4. Vacation Time 5. Taxis and Default Tips B. Explanations 1. Inertia 2. Endorsement 3. Reference Point and Loss Aversion 4. Deliberate Defaulting and Reflective Indifference 5. Diverse Explanations, Diverse Concerns II. NONSTICKY (IMPERSONAL) DEFAULT RULES A. Clear Preferences and Extreme Defaults B. Prompting Opt-Out III. A PUZZLE FOR CHOICE ARCHITECTS: WHICH DEFAULT RULE? A. The Informed-Chooser Default 1. The Central Idea 2. Doubts 3. Intensity and Opt-Out B. Penalty Defaults IV. BAD DEFAULTS V. ACTIVE CHOOSING A. Life Without Defaults? 1. The Basic Idea 2. Active, but Influenced, Choosing B. In Favor of Active Choosing 1. Overcoming Inertia 2. Overcoming Error-Prone or Nefarious Choice Architects 3. Learning and Development of Preferences 4. Accommodating Changes over Time 5. Paternalism and Its Discontents 6. Heterogeneity C. Against Active Choosing VI. PERSONALIZED DEFAULT RULES A. The Best of Both Worlds? B. Not Quite the Best of Both Worlds? 1. Problems 2. Abstractions and Concrete Cases C. Tracking and Extrapolating D. Information Acquisition and Privacy 1. Feasibility 2. Privacy E. Demographics CONCLUSION INTRODUCTION

Consider the following:

1. Some people have been interested in increasing consumers' use of "green energy"--energy sources that do not significantly contribute to air pollution, climate change, and other environmental problems. While such energy sources are available in many places, relatively few people choose them (notwithstanding the fact that in response to questions, many say that they would do so (1)). Nonetheless, two communities in Germany do show strikingly high levels of green energy use--well over 90%. (2) This is a dramatic contrast to the level of participation in green energy programs in other German towns, which was in a recent time period around 1%. (3) The reason for the difference is that in those two communities, people are automatically enrolled in green energy programs, and they have to opt out. (4)

2. In Germany, about 12% of people consent to be organ donors, whereas in Austria, the rate is 99.98%. (5) We might speculate that this significant difference stems from different cultures, different norms, or extraordinarily effective educational campaigns in Austria. The speculation would be wrong. Instead, the difference results from law and more particularly from the default rule. (6) In Austria, consent is presumed, subject to opt out. (7) In Germany, consent is not presumed, and people have to opt in. (8)

3. In the United States, savings rates have often been quite low, in part because people have delayed enrollment in pension plans. (9) A number of employers have produced significant increases in savings through one simple initiative: make enrollment automatic, subject to opt out. The result of this initiative has been to increase participation rates dramatically. (10) For retirement savings, automatic enrollment appears to have a far larger effect than even substantial tax incentives--a truly remarkable finding. (11)

   Those who devise default rules are choice architects, in the sense that they design the social background against which choices are made. (12) It is not possible to dispense with a social background, and some kind of choice architecture is therefore inevitable. Moreover, default rules, even or perhaps especially if they appear to be invisible, count as prime "nudges," understood as interventions that maintain freedom of choice, that do not impose mandates or bans, but that nonetheless incline people's choices in a particular direction. (13) A GPS is a simple example of a nudge; a disclosure requirement falls in the same category. (14) Default rules are canonical nudges.

   When private or public institutions establish a default rule, they do not force anyone to do anything. On the contrary, they maintain freedom of choice. (15) Whether people must opt out or opt in, they are permitted to do so as they see fit. (16) What is striking and somewhat (though decreasingly) mysterious is that default rules nonetheless have a large impact, because they tend to stick. (17) If a private or public institution seeks to alter outcomes, switching the default rule may be a highly effective route--perhaps more effective than significant economic incentives (as in the case of retirement savings). (18) Such incentives certainly matter, but sometimes people ignore them, especially if they have other things to which to attend. (19) People sometimes ignore default rules too, but that can be an opportunity, not a problem. (20) Default rules stick when and because people ignore them.

   It follows that with respect to health care, consumer protection, the availability of organs, energy use, environmental protection, mortgages, savings, and much more, the choice of the default rule is exceedingly important. Public-spirited or self-interested people in both the private and public spheres can and do use default rules to produce outcomes that they deem desirable. (21)

   One of the most important tasks of a legal system is to establish default rules. Indeed, many policies operate through default rules, and contract law consists in large part of such rules. (22) What happens if the parties are silent on whether employees may be fired only "for cause," or instead for whatever reason the employer deems fit? A default rule might specify the answer, and it might well stick. (23) In the law of contract, people often do not contract around default rules even if it is relatively costless for them to do so. Of course, some legal rules are mandatory; they do not merely set the default. (24) Employees are not allowed to opt out of the prohibition on racial discrimination or sexual harassment. (25) But even in sensitive and controversial contexts, default rules might be important. For age discrimination, for example, the United States allows people to waive their rights at the point of retirement, subject to certain constraints. (26)

   In this Article, I have two major goals. The first is to provide a general overview of what we now know about default rules--about when they have large effects and when they do not, and exactly why. In some cases, preferences do not antedate the default rule, or stand apart from it; they are constructed by it. (27) It is for this reason, among others, that default rules serve as a highly attractive alternative to incentives as a means of altering outcomes--at once less expensive and more effective. (28) Indeed, and because they specify a particular outcome in the (often likely) event of inaction, default rules can have a much larger effect than incentives. (29) Choice architects may well be able to use default rules to produce outcomes that could otherwise be achieved only through substantial expenditures of resources. Indeed, both private and public institutions are already doing exactly that.

   The second goal is to make some progress toward understanding the choice among three alternatives: impersonal default rules, active choosing, and personalized default rules. In countless contexts, choice architects select one of these options. An impersonal default rule applies to all of a relevant population, establishing what happens if people do nothing. By contrast, active choosing asks people to make an explicit choice among the various options. Active choosing might be purely voluntary, as in the case of items in a grocery store, or it might be required, in the sense that people must make a choice in order to receive a benefit or to avoid a sanction. A personalized default rule attempts to distinguish among members of the relevant population, ensuring (in the extreme case) that each individual receives a default rule that fits his or her particular situation.

   Most default rules are impersonal, in the sense that they do not distinguish among...