The Default Heuristic1

The default heuristic is to stick with what you have and not to change. Like most heuristics, sometimes this works and sometimes it doesn’t. In the 1080’s Pacific Gas and Electric noted that service varied among its districts. Some were more reliable than others. These differences were due to geographical differences that affected the timeliness of service in the different districts. To make matters more equitable, Pacific Gas and Electric conducted a survey. They asked customers with less reliable service if they would be willing to pay more for increased reliability. They asked customers with the more reliable service if they would be willing to accept less reliable service for a decrease in their costs. The customers were overwhelmingly wanting to keep the level of service they had. Now the difference in service was substantial. The unreliable service group suffered 15 outages per year of 4 hours average duration. The reliable service group suffered 3 outages per year of 2 hours average duration.

There are two perspectives to be considered here. The first perspective is that of the person or entity setting the default. If you want people to opt for making 401K contributions, then you set this as the default and offer employees the option to opt out. If you want people to become organ donors, then you make this the default and offer people the option to opt out.

The second perspective is from that of the person being offered the default option. Do not be a cognitive miser. Consider the options carefully before deciding to opt in or out. The exercise of this additional mental effort will be beneficial to your finances. It should also be beneficial to your cognitive health.

1Most of this content is based upon Stanovich, K. E. (2009). What Intelligence Tests Miss: the psychology of rational thought. New Haven: The Yale University Press.

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