Complexity and Smart Nudges with Inattentive Consumers

73 Pages Posted: 26 Nov 2012

See all articles by Stefania Sitzia

Stefania Sitzia

University of East Anglia

Jiwei Zheng

University of East Anglia (UEA)

Daniel John Zizzo

University of Queensland

Date Written: November 26, 2012

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

JEL Classification: C91, D03, D04, L51

Suggested Citation

Sitzia, Stefania and Zheng, Jiwei and Zizzo, Daniel John, Complexity and Smart Nudges with Inattentive Consumers (November 26, 2012). Available at SSRN: https://ssrn.com/abstract=2180956 or http://dx.doi.org/10.2139/ssrn.2180956

Stefania Sitzia

University of East Anglia ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

Jiwei Zheng

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, NR4 7TJ
United Kingdom

Daniel John Zizzo (Contact Author)

University of Queensland ( email )

St Lucia QLD 4072, Australia
Brisbane, Queensland
Australia

HOME PAGE: http://www.danielzizzo.com

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