2. Default theory
3. The Experiment
3.1. The Environment
3.2. The Implementation
4.1. Data description
4.2. Data analysis
The so called nudging or setting defaults are getting more and more common. After the United Kingdom and the United States of America, Germany also got a nudging unit to affect laws by behavioral economic founding.
Many aid organizations often struggle to collect enough donations in order to provide the help that is needed. By learning more about the donation behavior of individuals this problem might be solved. This study tries to find possible connections between donation behavior and default option problems.
A lot of previous studies in behavioral economics show that setting defaults to opt-out are significantly influencing the behavior of the participants. Our experiment should analyze these findings concerning giving donations to charity organizations. We want to investigate if there are differences in donation between the opt-in and opt-out options. For that, we will conduct selling “Berliner” at two booths. At the first booth we will set the default 1€ and ask for a 0.50€ donation on top. At the second table we will set the default 1.50€ with the opportunity, not to pay the 0.50€ for donation, if the participant does not want to.
First, we will build a theoretical framework for our study in which different default option studies will be introduced. Furthermore, a hypothesis is constructed following the results of these previous studies. Following our argumentation, it is hypothesized that the number of donations should be higher in the case of opt-out than in the case of opt-in. After the overall framework is explained, our experiment will be described in detail. At first the overall environment, structure and design of the experiment is described. Following, the implementations are stated.
In the next chapter an analysis of our results is conducted. In the beginning our findings are presented in a number of charts and figures. Subsequently, these findings are analyzed and discussed with a critical point of view. Possible improvements are mentioned and problems that occurred during the experiment described. At last an overall conclusion will be drawn with suggestions for further research
2. Default theory
In behavioral economics is the default theory a widely discussed theory.
Behavioral economics are a sub discipline of the economy that tries to analyze the interactions of humans with their environment. The term nudging was defined by Richard Thaler and Cass Sunstein in their book “Nudge” (2008). Thaler and Sunstein (2008) state that nudge “is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.” (Thaler and Sunstein, 2008: 6).
Nudging is part of the libertarian paternalism and active engineering of choice architecture. Libertarian paternalism is a term that was also coined by Thaler and Sunstein in 2003. Libertarian paternalism means that the behavior of individuals may be influenced by private and public institutions. It is important that the freedom of choice is respected.
“Opt-in” and “Opt-out”, or also called default theory, are theories which are part of the nudge theory and libertarian paternalism. Opt-in means that an option is possible and it is not already implemented. As an example, organ donations can be used, where this theory was used by Johnson and Goldstein (2003). In the case of opt-in, accepting to donate organs is not set as default. In the case of opt out, organ donations would be set as default and only if you specifically state that you do not want your organs to be donated, they will not be donated towards people in need.
Opt-in and opt-out was already used as an idea for organ donations by Johnson and Goldstein (2003). Since “people simply find too little value in organ donation” (Johnson and Goldstein, 2003: 1), it was hardship to find possible donors for people who needed them. In order to improve the situation for the ill people, Johnson and Goldstein (2003) draw from the “opt-in – opt-out” idea. Defaults influence choices of individuals in three different ways.
First, it might implement the belief that the default is a suggestion made by the policy maker. Since the policy maker can be seen as an authority and therefore is the suggestion similar to a recommended action. Secondly, making a decision always involves a certain degree of effort. If one option is already set as default it is effortless to accept this option. Finally, a set default represents “the existing or status quo” (Johnson and Goldstein, 2003: 1). Changing this default is often associated with a tradeoff. Tversky and Kahnemann (1991) analyze this behavior and state that changing the default appears to produce larger losses then the gains. They call this effect loss aversion.
Overall Johnson and Goldstein (2003) find that any change in default may have an influence on the behavior of individuals. Their data suggests that a change in default can increase the number of donations. The results show that opt out produced higher number of donations than opt-in.
Different studies have supported their finding since then. Similar to the study explained above, Abadie and Gay (2006) studied the impact of opt out on donation numbers for organs. In a cross country study for 22 countries over a 10 year period they find further support for the results from Johnson and Goldstein (2003).
Opt-in opt-out studies have also been applied to other fields.
Altmann et al. (2014) tested the default options for online donations. In that study the default option has a significant influence on the donation behavior. The higher the default the higher the average donation. In other words, the average donation adjusts to the set default.
Ebeling (2013) found out, that if the default for new electricity contracts was green energy, new customers decided almost ten times more for green energy than if the default was non-green energy.
Madrian and Shea (2001) studied the impact of automatic enrollment in retirement programs, so called “401 (k)”. Their results show that the participation in retirement saving plans was significantly higher in the case of automatic enrollment.
Haggag and Paci (2014) analyze the influence of default tip suggestions in New York City taxis on the income of the taxi drivers. They find that with a default tip suggestion, the amount of tips increased substantially.
Many different studies have shown that opt out produced much higher results, than opt in. In the following study, we want to analyze if opt-in and-opt out have an impact on donations collected from university students. It can be hypothesized that donations will be higher for the opt-out case.
In the following the experiment will be described in detail and results will be analyzed.
 A “Berliner” is a German pastry filled with marmalade or jam, similar to a doughnut.