Money Hacks: don’t let the default effect make choices for you

Money Hacks is a series exploring Behavioural Economics concepts, illustrating how unconscious biases influence the decisions we make with money. By understanding these biases and learning to avoid them, we can spend smarter, save more, and make better financial decisions overall.

Almost any time we buy something, we’re asked to make choices. Sometimes the choice is small – such as what side dish we want with our meal or whether we want our online purchase delivered in one day or three. Other choices may have a longer-term impact on our finances, such as what cell-phone package we choose or what features we get on a new car. Often, when we’re presented with a choice, there’s a default already selected. And, because of the default effect, that’s the option we usually end up with.

The default effect states that making an option the default increases the likelihood that it will be chosen. This is because when we’re asked to make a choice, we usually take the path of least resistance.

Defaults can sometimes be helpful. When there are a lot of choices to make and the impact of making one choice vs. another is low, it can be nice to have someone else do the thinking for you. It makes it easy to complete the task and move onto something else. But sometimes the default is set based on what’s best for the company rather than what’s best for you. And, in those cases, sticking with the default choice can cost you a lot of money.

Half the battle is just being aware of the default effect. Start by watching for choices where a default has already been selected. You’ll soon realize that defaults are used almost everywhere – from how much tip to add to your restaurant bill to what features you get in your internet package.

When you come across a default, stop and ask yourself some questions:

• Is the default option at the higher end of the price range?
• Do I need all the features that come with the default option?
• Is it easy to change to a less expensive option in the future?
• Has the vendor made it easy for me to choose something other than the default?

You may find that the default is, in fact, the right choice for you. However, in some cases, taking the default option means you’re spending extra money on features you don’t need.

Next time you buy something, don’t just settle for the default choice. Take a few extra minutes to understand your options and choose the one that’s right for you. You’ll be happier with your purchase, and your budget will thank you.