Sophisticated Consumers with Inertia: Long-Term Implications from a Large-Scale Field Experiment

Abstract

Using a randomized field experiment with a leading European newspaper, we study both the inertia anticipated by consumers and the actual inertia they experience. Our experiment among two million readers varies promotional subscription terms, including whether or not the contract automatically renews to a full-price subscription by default. By analyzing their subscription behavior over two years, we study how consumers respond to inertia-inducing subscription contracts in the short- and long-run. We find strong inertia. Half of the auto-renewal contract takers continue to a full-price subscription while rarely using it. At the same time, consumers preempt their future inertia; 24%-36% of potential subscribers avoid subscribing when offered an auto-renewal promo. Further, offering an auto-renewal contract decreases the share of subscribers over the two years after the promo by 10\%. Even though auto-renewal generates higher revenue in the medium-run due to payments from inert subscribers, auto-renewal and auto-cancel are revenue equivalent after one year, but with fewer subscribers in auto-renewal. Using a mixed-types model, we estimate that while 70% of consumers are inert, a large majority of them (at least 58%) are aware of their inertia. Our results highlight the importance of sophistication about future biases in the market; sophisticated consumers avoid exploitation and are missed by researchers and firms analyzing only takers, since takers are selected on their naïveté.

Keywords: consumer sophistication, inertia, subscription, contracts, default effects, procrastination, naivete, nudges

JEL Classification: L82, M21, M31, C93, D90, D12