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Contrary to classical economic theories, people do not make economic decisions that benefit them the most but are biased towards default options. This bias has mostly been explained by how the options are framed. An experimental study by behavioural scientists from the University of Amsterdam now proves that biases are also built when framing is absent, originating from a person’s internal state. The results are published in PLOS ONE.

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At some point in our lives, we all make economic decisions; for example, about an investment or a savings plan. When doing so, we have to choose between different options on offer which vary in profits and risks. According to classical economic theories, we would choose the option that is the most profitable for us. Scientific research, however, showed that people are biased towards default options – options which are normative or which are automatically presented to us – that might not be the most profitable ones.

Looking at how people build biases

Researchers have tried to explain this bias by looking at the framing of options, at how something is presented to us. It was found that presenting an option as the default has a strong effect on our bias. Behavioural scientists at the University of Amsterdam approached this bias from a different angle. They wanted to know in how far our biases originate from a person’s internal state. In an experimental study, they removed the role of framing and tried to find out whether people still build a bias towards default options.

Two experimental lotteries

The study consisted of two lab experiments. In the first experiment, participants were asked to choose between different lotteries, in which certain amounts of money could be won. The higher the amount, however, the lower was the chance to win. In the second experiment, participants had to choose between lotteries in which there was a chance of losing money instead. The higher the amount that could be lost, the lower was the chance that this result would actually happen. The framing of all lotteries was the same in both experiments (either as a gain or as a loss), making sure that no bias could be triggered by framing effects. Furthermore, the effect of time pressure and the repetition of choices were studied.

People are biased in the absence of framing

The results of the experimental study showed that people build a bias towards default options when framing is absent and that these defaults are internally shaped in different forms. Under time pressure, the participants avoided risks in the gain-oriented lotteries but gambled more in the loss-oriented lotteries. The manipulation of choice repetition while progressing through the experiment showed that participants implicitly learned the most desirable lottery type and kept repeating it, even if that lottery type was not consistent with the lottery type which they chose under time pressure.

‘Our study shows that people are biased even in the absence of framing. We reveal two features of default options which are triggered from within and which bias individuals’ choices: a natural tendency to prefer certain types of options under time pressure (natural default) and the tendency to learn a default option implicitly from past choices (learned default)’, explained researcher Joaquina Couto.

‘The novel contribution of our study is experimental evidence of how people build and apply different defaults in economic decisions, which are not explicitly framed to them, and how this process biases their choices. These defaults, although potentially underpinned by different neuro-cognitive processes, could be confounded in other – simpler – experimental designs’, continued Couto.

Be aware of your biases

‘This study was conducted in an experimental lab setting and we cannot generalise directly for the real world, but the trade-off between a certain amount of money and the probability to win or lose can also be found in the real world’, explained Couto when asked how the results could be translated to everyday life.

‘To me, the study shows that we should be aware of our biases and that this awareness is used by us as well as by who assists us in our choices. The observation that people can learn a default over time regardless of their natural default is, in my view, quite interesting. Even if a person is naturally risk-averse in their investments, they can learn to choose more risky investments when they are eventually more economically desirable‘, suggested Couto.

Publication details

‘Investigating the origin and consequences of endogenous default options in repeated economic choices’, Joaquina Couto, Leendert van Maanen, Maël Lebreton. Published: 13 August 2020, PLOS ONE.