Status Quo Bias
Status quo bias is the tendency to retain an existing choice. Thaler and Sunstein’s Swedish pension account describes inertia both among savers who chose their own funds and among those who remained in a default fund.
THE IDEA
The Power of Inertia and Defaults
Thaler and Sunstein describe inertia at several levels in Sweden’s pension system. Citizens who were nudged by the government and advertisements to become their own portfolio managers steadfastly stuck with that approach, but then they became highly passive. Even a major scandal involving a fund manager did not set off alarm bells. Those in the default fund were also oblivious to a massive change in the fund's makeup. In the book’s account, policymakers had not undertaken a radical redesign, although the number of funds had fallen from nine hundred to just under five hundred.
The Idea of a Restart
A recommended practice is a 'restart' — periodically encouraging investors to start over, ideally without being reminded of what they currently own. This would require picking a default for those who don't respond. The stickiness of nudges is an empirical question, varying across populations and contexts. Default rules are likely to be sticky when people are on autopilot, like Swedish retirement savers resembling objects in outer space that keep moving until nudged again.
Broader Implications
Nudges vary from defaults to text reminders to graphic warnings. Their longevity depends on attention and context. For example, graphic warnings may lose effect over time, so choice architects should rotate them. Defaults are most persistent when people are on autopilot.
When to use it
Designing retirement savings plans: defaults should be sensible and periodically reconsidered.
Public policy: choosing defaults for organ donation or energy plans.
User interface design: default settings for software.
Health decisions: default appointments or treatment plans.
FROM THEORY TO EVERYDAY LIFE
In practice
Swedish Pension Default
In the Swedish pension system, citizens were nudged to become portfolio managers but became passive. A scandal involving a fund manager did not cause them to switch, and even major changes to the default fund went unnoticed. Policymakers also resisted overhauling the system.
Illustration of Inertia
The text compares Swedish savers to objects in outer space—once nudged, they keep going until nudged again. This contrasts with active decision-makers like drivers changing lanes.
A MOMENT TO REFLECT
Put it to work.
Why do people stick with defaults even when they are suboptimal?
How can choice architects design systems to periodically encourage re-evaluation?
In what areas of your life are you subject to inertia due to defaults?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- Nudge The Final Edition (Richard H. Thaler Cass R. Sunstein)