Skip to content

IAI Actuarial Core Principles · Business Economics · Consumer demand and behaviour

A savings-product provider finds that customers enrolled in a pension scheme by default stay in it at far higher rates than customers who must actively opt in. Which behavioural idea best explains this?

Inertia and status quo bias explain it. Individuals tend to stay with a pre-selected default because acting to change it takes effort and feels like a loss, whereas a fully rational consumer with full information would choose the same irrespective of the default.

  1. AInertia and status quo biasCorrect
  2. BDiminishing marginal utility of income
  3. CPerfect rationality with full information
  4. DGiffen good behaviour
  5. Rising marginal cost of production

Explanation

People often stick with the default option because changing requires effort and they favour the current state. This is status quo bias or inertia. Traditional rational choice theory would predict similar participation regardless of the default, so it does not explain the gap.

Did you get it right without looking?

One question tells you little. A timed set on Consumer demand and behaviour shows your real accuracy, how long you take and where you lose marks.

Practise Consumer demand and behaviourFree diagnostic mock

More Consumer demand and behaviour questions