Working Paper 12-13

Complexity and Smart Nudges with Inattentive Consumers

AUTHORS: Stefania Sitzia, Jiwei Zheng, & Daniel John Zizzo

ABSTRACT: In an experiment on markets for services, we find that consumers are likely to stick to defaults and achieve suboptimal outcomes. We unpack two key psychological reasons why they do this – complexity (in terms of non-linearity, number and bundling of tariffs) and consumer inattention -. The complexity induced by product bundling, non-linearity and number of tariffs has an important role, but this is overstated if the explanatory power of inattention is neglected. We show that a ‘smart nudge’ policy of automatically switching default tariffs can be used to exploit inattention-based consumer inertia to achieve better consumer outcomes.

KEYWORDS: Complexity, inattention, defaults, warnings, nudges, services, energy

CITATION: Sitzia, S., Zheng, J. & Zizzo, D. (2102) 'Complexity and Smart Nudges with Inattentive Consumers', CCP Working Paper 12-13

Policy Brief 12-13

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