By Guy Higgins
I read an article on the behavior of Americans when shopping for health insurance. The author of the article expresses surprise that most Americans spend fifteen minutes shopping for health insurance during open enrollment periods. Those same Americans spend hours shopping for vacations, cars, televisions, etc.
There is an important lesson here for leaders – people, not just Americans, choose the default options the vast majority of the time. When faced with a decision where there is a default option, most people simply accept the default option and move on. That applies to choosing healthcare, to managing their IRA or 401K investments and to automobile insurance.
A default option exists when:
- A decision has already been made – such as in the case of auto insurance. You chose company A the last time you needed insurance, and it’s the default even when you change cars. The same may be true of automaker – a Chevy person often remains a Chevy person (although perhaps not as much as was once true in the case of automakers).
- When there is an explicit default option provided, as when choosing whether or not to invest in your company’s 401K. Many companies provide a default option of participating (or of not participating).
- When there is detailed, easy option, as in a pre-defined portfolio of investment choices vs. the opportunity to invest in a self-selected portfolio (which would take some thought and work).
- When people can take a specific action to avail themselves of an offered benefit – as in the case where a company reimburses the full cost of a flu vaccination if they go get it themselves. Here the default is to do nothing since taking advantage of the offer requires taking action.
Why do people overwhelmingly choose the default? This is one that has been explored in depth by Nobel Laureate Daniel Kahneman (and others). Kahneman explains the phenomenon in Prospect Theory (the theory of how people make decisions to pursue gain and avoid loss/risk). Basically, humans have an innate tendency, when faced with a decision, to prefer not taking action as opposed to taking action. We, intuitively, categorize the status quo (not taking action) as a known situation and therefore less risky than an unknown future that follows taking action. When I was a student at the Navy Test Pilot School, we were told that most aircraft accident injuries and fatalities were due to the reluctance of pilots to eject. Survivors told accident investigators that they felt more in control and at less risk when in the cockpit – even though the airplane had suffered a major failure – and did not want to eject. That may reflect the same aversion to taking a different action – the default was to stay with the airplane rather than choose to eject. So, accepting the default is a human tendency.
Are defaults bad? I don’t think that they are necessarily good or bad, but it is important for us to understand that default options are powerful.
What I think this means for leaders is that when we are faced with a decision, we need to recognize whether or not there is a default available to us, and, if so, take care not to be biased by the existence of that default. I think that it is also important to remember the power of default options when we are offering choices to others.
As a simple example, when offering a flu vaccination, a leader who wants to ensure that his work force is inoculated against the flu can inadvertently create different default options:
- He can offer full reimbursement for the cost of the vaccination at an employee’s local clinic. This is a generous offer, but the default (the easy thing to do) is actually to do nothing.
- Or, he can bring in a medical team to give free flu vaccinations at an “all hands” meeting, or at the entry to the cafeteria, or following a fire drill as everyone re-enters the building. In this case, employees can still refuse the vaccination, but the default (the easiest thing to do) is to get the shot. No other action is required.
Considering the default option is just another of those things that we need to remember and use appropriately. Are you doing the right thing for your company or just the easy thing?