Default effect versus active decision: Evidence from a field experiment in Los Alamos

Abstract

We examine how consumers respond to distinct combinations of preset defaults and subsequent economic incentives. A randomised controlled trial is implemented to investigate the demand reduction performance of two electricity pricing programmes: opt-in and opt-out critical peak pricing. Both the intention-to-treat and the treatment-on-the-treated are more pronounced for customers assigned to the opt-in group, and the opt-in treatment effects are relatively more persistent over repeated interventions. This result suggests that the opt-in type active enrolment itself had an impact on customers’ subsequent behaviour and made them more responsive to the treatment interventions. Moreover, only the opt-in treatment has significant effects beyond the treatment time window. Our results, therefore, highlight the important difference between an active and a passive decision-making process. We also estimate a marginal treatment effect model to inform the external validity of our experiment.