Default Options Abuse Consumers

Joel S. Hirschhorn

At some point the business sector realized the best way to take advantage of consumers was to use default options that make them spend money. A default option works because it creates an automatic decision by the consumer doing nothing. And doing nothing is the path of least resistance for time-poor consumers struggling to balance the many difficult responsibilities associated with work, family, maintaining financial security, and coping with stresses on their health.

Consider, for example, the endless advertisements that offer a free sample or trial for a product, such as some nonprescription medication or vitamin supplement. It may be a free week’s or month’s worth of product. But the find print is that you will automatically be enrolled in a program that mails you a monthly supply and bills your credit card. There probably will be some opportunity for you to cancel or opt out of this program, but doing so will require some significant effort by mail or phone that most consumers will not find the time or energy to execute. No, the easy way is to just let the default option control your cost, even if you were not especially impressed with the trial use of the product. The same thing often happens with free trials for a magazine or some email publication.

If consumers were given a truly free choice they would have the opportunity to explicitly decide to buy a product that they tried or do nothing and have no future cost. This is the way it used to be before companies discovered the tyranny of coercive default options. Even today, when you are in a store and take a sample of food or some other product you have the freedom to walk away with no future cost or to decide to buy the product. Not so, however, with almost all “free” offers coming by way of newspaper and magazine ads, or the mail or Internet.

We should be sensitive to the ugly reality that there are many consumers who simply do not comprehend all the consequences of product default options. The principal example being elderly and ill Americans that may have some reduced intellectual or cognitive capabilities. Younger consumers and overly busy ones can also fail to appreciate default options. Millions of people are vulnerable to slick “free” offers that cleverly hide or disguise costly default options.

Governments can also use default options. The power of default options was recently illustrated by a study of how the rates of organ donation consent vary among nations. In the US where the default option is a negative decision (you must positively declare your organ donation consent), the rate is 28 percent and is somewhat similar in other countries using that default option, including 17 percent in the United Kingdom and 12 percent in Germany. But in nations where the default option is a positive decision for organ donation the rates are consistently very high, including nearly 100 percent in France, Austria and Hungry. This huge national difference was explained by University of Chicago behavioral economist Richard Thaler: “God made us lazy and busy and prone to inertia.”

Another example pertains to employers. When new workers are told that retirement accounts will automatically be started for them, unless they intentionally opt out (a positive default option), most gladly sign up. In contrast, if new hires are informed that such accounts will not be started unless they opt in (a negative default option), most do not sign up.

These two examples show the positive use of default options for the good of people and society.

This is not the case for consumer products.

People should always question “free” offers. Always ask yourself “Is there a costly default choice that will hit me?” Such a default choice is really no choice at all. Companies should not be free to deny us of real free choice when it comes to purchases.

I would like to see a federal consumer protection law that makes it illegal for all companies to use no-action default options that obligate consumers for future purchase. And so should you.

Or, in the alternative, you could simply read the parameters of the offer.

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I wasn't born with enough middle fingers.

What a horribly written article. I agree with part of it - telemarketing and advertising that offers free stuff if you order with your credit card is dangerous - but at the same time consummers should know. My parents taught me that.

What I'm saying is that it's a good idea to ban certain things, but allowing such banning is a dangerous path that leads to more and more government regulations. I'm also not very keen on the idea of spending government money to keep us form spending money. Sounds dumb. People will learn.