default rules

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A couple years ago, Washington State switched the default rule on state park fees that drivers pay (or don’t pay) when they renew their licenses. Reader Steve Loeb nicely captures what this switch looks like on the Washington State Department of Licensing site.

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Nudge blog note: Last night’s Republican debate prompted Richard Thaler to weigh in on Rick Perry’s handling of an HPV vaccine executive order, but not the policy itself. Also, Thaler recently started tweeting. Follow him.

By Richard Thaler

In the Republican Presidential debate last night at the Reagan library a question emerged about Rick Perry’s now famous 2007 executive order requiring all Texas girls to receive a vaccine against the human papillomavirus (HPV) before entering the sixth grade. Perry said during the debate that his order was not a “mandate,” which is grounds for treason in Republican circles, since there was an opt-out provision. (The issue became moot since the Legislature over-ruled him and the shmandate was never imposed.)

These kinds of issues are well known to nudgers. There is not a bright line distinguishing a mandate from a nudge; the question becomes one of costs. In the case of a default option, the question is how costly is it to opt out. As we have often said, the ideal nudge has “one click” as the cost of opting out. And the button to press for that click should be easy to find. Mandates are also not all equally offensive. In Romneycare, for example, there was a fine for not having health insurance, but the fine was pretty small — around a couple hundred dollars — at least initially.

If it is sufficiently onerous to opt out of a default rule then it effectively becomes a mandate. Conversely, if the fine for violating a mandate is small and/or unlikely to be imposed, the mandate is rather mild. (Consider the mandate to clean up dog poop. Have you ever heard of anyone being busted for this?)

The actual facts of the Perry inoculation mandate are summarized well by Politifact Texas. They assigned a “mostly false” verdict to Perry’s claim that his policy was not a mandate. This verdict was based on the fact that parents would have to request and file a conscientious objection affidavit form, the same form that is used if parents want to opt out of other health mandates such vaccines for measles or polio. Apparently few parents elect to fill out this form, though the reasons are unclear.

We don’t know whether the form is hard to get, hard to fill out, or whether most folks want their kids to get their shots. I conjecture that one reason might be the name given to the form. I am guessing that the term “conscientious objector” is not highly regarded in Texas. A “hell no, I ain’t goin’ along with this” form might have gotten more take-up. Politifact also notes that Catholic schools do not accept these forms, presumably because the Church is in favor of strict mandates.

Politifact’s verdict might be a bit harsh. On the Nudge-Mandate continuum, Perry’s policy was somewhere in the middle. There is an opt-out, but it is clearly more costly than one click. Still, I am guessing that Mr. Perry will not be endorsing libertarian paternalism any time soon.

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Since our Groupon posting, we’ve gotten a few comments about opt-out emails. One interesting example, courtesy of a FONB (friend of the Nudge blog), comes from the Asian chain restaurant Pei Wei. Customers can sign up for “email alerts.” If they want to unsubscribe, Pei Wei takes them to a screen that directs them to “uncheck the box to unsubscribe.” Is Pei Wei is trying to do customers a service by cutting down on the extra click they have to make? Or is just trying to confuse customers who don’t read the page closely and react the way unsubscribe works on most other sites? Either way, “it definitely took me a minute to figure out exactly what I needed to do to unsubscribe,” the reader writes.

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The NYT reports on a default tip policy for foreigners at a Thai restaurant in Hawaii. Even worse, it’s surreptitiously delivered.

But lately a small notice on a menu in Waikiki prompted an outcry — and in some quarters, nods of recognition — about the island’s dealing with foreign visitors. The notice, at a Thai restaurant called Keoni by Keo’s, informed “non-English speaking guests” — in English — that a 15 percent gratuity would be added to their check, an apparent reaction to a custom of some guests, particularly those from Asia, to not tip their waiters.

The restaurant’s owners, who removed the notice from their menu after a local television station reported it, did not comment. But some other tourism-reliant businesses said they understood the restaurant’s motivation, even if they were surprised it posted the notice.

Hank Taufaasau, the owner of Hank’s Cafe Honolulu, said Asian guests often did not add a gratuity. “It’s not part of their culture,” he said. “They spend a lot of money, but they don’t tip.”

Mr. Taufaasau emphasized that he did not approve of Keoni by Keo’s actions, but his assessment of the cultural divide was echoed by waiters and managers as well as on primers included with checks at several establishments.

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It’s called the Automatic 401k re-enrollment. The WSJ reports:

In a bid to help employees get their retirement savings on track, more 401(k)-plan sponsors are shifting workers’ 401(k) dollars out of their current investment allocations and into the plan’s default option—usually a target-date fund.

It’s called re-enrolling. Employees have the options of sticking with their current investment selection, if it’s still offered, or choosing another mix. But in a re-enrollment, unless the participant specifically opts out, his or her 401(k) will be re-allocated to the company’s chosen default investment.

As with automatic enrollment, opt-out rates are low.

Mr. Reish and his colleagues, who represent several major 401(k) providers, were initially worried about potential push-back from employees. However, only one worker complained, saying a target-date fund would be too conservative, he says. Others opted out with no gripes about the process.

All told, about half of the employees re-elected their prior investment selection or selected some other investment strategy.

Employees who opt out are more likely to be better educated, older and more affluent than those who accept the default, says Mr. Utkus.

Reish & Reicher’s opt-out rate was higher than most companies that undergo a re-enrollment.

Indeed, for companies moving their 401(k) plans to T. Rowe Price Group, the acceptance rate is much higher and has increased in recent years, says Carol Waddell, director of product development for the company’s retirement-plan-services unit. Among employers that shifted their 401(k) plans to T. Rowe Price and conducted a plan “reset,” roughly 87% of all participants remain in the target-date fund 18 months after the conversion, she says. Ms. Waddell adds that 57% of plans transferred to T. Rowe Price in 2009 conducted plan resets for their employees, compared with 14% in 2005.

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The NYT opened up a forum for people to submit ideas on default rules that could be changed. One idea, proposed by a reader in “KC”, that Tina Rosenberg found interesting was around health care appointments.

“When signing up for a health plan, it might be effective to have to opt-out of preventive treatments, such as an annual checkup. I never went for my annual checkup when I was younger because it required researching a doctor and scheduling an appointment. I would have gone to a checkup if I was given a default doctor and had an appointment scheduled for me.”

Choosing a doctor can be a personal choice, which seems like a good reason for resisting switching this default rule for some. But HMO plans have made medicine far more impersonal than it was a generation ago. And with people moving to new cities and need to find new physicians, it might be a default rule switch worth looking into for some patients. The default rule switch need not be some elaborate set up taking into account various preventative procedures. It could be as simple as this: When you sign up for a new health plan, a primary care physician close to your work or home is chosen for you and one appointment is scheduled within the coming few months. You are provided with a number to call to cancel the appointment or to switch doctors.

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Tina Rosenberg writes:

Four years ago, I visited a hospital in a Johannesburg township of Alexandra where just over half of all pregnant women agreed to take an AIDS test. At the same time at the Chris Hani Baragwanath Hospital in Soweto, 98 percent of pregnant women took an AIDS test. There, women are informed that the test is part of the standard package of prenatal tests. A woman can opt out if she chooses.

This makes a lot of sense. AIDS testing was designed to be opt in back when there was no overwhelming reason for people to know their H.I.V. status, as there was very little that could be done for them if they tested positive. Today, even in the poorest countries, patients who learn they are H.I.V. positive can get lifesaving therapy and pregnant woman can take medicines to avoid passing the virus along to their babies.

The change to opt-out helped Botswana increase acceptance of AIDS tests from 64 percent to 83 percent in just one year. Test rates in clinics in Zimbabwe went from 65 percent to 99 percent with a similar change. In 2004, the United Nations AIDS agency and the World Health Organization began recommending opt-out testing in countries where AIDS is widespread.

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Assorted links

1) 10 percent of AOL employees at the Dulles campus work at their desks standing up.

2) A smart behaviorally informed tax cut may not be such smart politics. Fewer than one in ten people know they got a tax cut last year.

3) Unhealthy food purchases are more likely to made with credit or debit cards.

4) Cornell gets $1 million to fund the Cornell Center for Behavioral Economics in Child Nutrition Programs from the U.S. Department of Agriculture.

5) A leading Indian telecom uses opt-out ebilling. Hat tip: Amol Agrawal.

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1) Richard Thaler on the mental accounting behind a devilish rebate card.

2) Dan Goldstein on the taxonomy of defaults.

3) It takes an average of 66 days to form an (easy) everyday habit.

4) The New Yorker reviews procrastination. A book about it, anyway.

5) Does prospect theory kill the taxpayer receipt idea?

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1) Department of confusing legal arguments: Vitaminwater is being sued on the grounds that it doesn’t provide the health benefits it claims. Vitaminwater’s defense? “No consumer could reasonably be misled into thinking Vitaminwater was a healthy beverage.

2) A health care provider teams up with a coupon distributor to send its plan members coupons for products targeted to alleviate their chronic conditions. Hat tip: Zach Perry.

3) Nudge unit at 10 Downing street.

4) A series of “green” default options at this year’s Association for Consumer Research conference. Hat tip: Dan Goldstein.

5) Princeton economist Uwe Reinhardt on a new wrinkle to a nudge-friendly proposal to automatically enrolling Americans in a health plan, but give them they option to opt-out. The wrinkle is having opt-outers lose the right to buy health insurance under the terms of the recent legislation (meaning they’d buy insurance in today’s market) for some number of years.

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