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August 30, 2006

Professor Johnson Shows Power of Default Options in FT Op-Ed

While it’s clear that default options save time, they also hold sway over billions of dollars and thousands of lives.

Topics: Marketing

While it’s clear that default options save time, they also hold sway over billions of dollars and thousands of lives, Professor Eric Johnson of the Marketing Division wrote in a piece published in today’s Financial Times.

Faced with the countless decisions of everyday life — such as how much to contribute to a retirement savings plan or auto insurance — millions of people rely on predetermined default options. “Choices that seem trivial, like which Internet search engine to use, may never get made,” Johnson wrote. “Defaults can be frighteningly influential.” The piece was coauthored by Daniel Goldstein, an assistant professor of marketing at London Business School.

Microsoft recently bowed to unrelenting European Union critics and agreed to let computer manufacturers choose software defaults instead of favoring Microsoft applications. But the U.S. Department of Justice, when asked by Google to make a similar intervention, did not see Microsoft’s use of defaults as an unfair advantage. “Those who downplay defaults argue that since they are easy to change, they do not need to be regulated,” wrote the authors. “This may be true, but in a free society, pressing decisions abound and there is not enough time to give each its due.”

Defaults can also save lives, the authors argue. They conducted a series of studies on organ donation policies in Europe. In some countries, everyone is a potential donor by default; in others, volunteers must opt in. The authors found that a difference in default policy can account for a 16 to 50 percent increase in transplantations performed in a country.

The column can be viewed online at FT.com (subscribers only). Johnson, the Norman Eig Professor of Business and director of the Columbia Center for Excellence in E-Business, serves on the editorial boards of several journals, including the Journal of Consumer Research, the Journal of Interactive Marketing and Marketing Letters.