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IAI Actuarial Core Principles · Business Economics · Main economic schools and their key features

An Indian life insurer finds that customers enrolled by default in a pension top-up scheme rarely opt out, while customers asked to opt in seldom join. Which idea from behavioural economics does this most directly illustrate?

This illustrates status quo bias and default nudges. People tend to stay with the pre-selected option through inertia, so default enrolment gives high participation while opt-in requires active effort and attracts few, even though choice remains free in both cases.

  1. APerfect information among consumers
  2. BStatus quo bias and the power of default options (nudge)Correct
  3. CThe Ricardian equivalence proposition
  4. DMonopolistic competition in product differentiation
  5. Crowding out of private investment

Explanation

People tend to stick with the pre-selected option because of inertia and status quo bias. Choice architects use defaults as nudges without removing freedom of choice. The other options concern information, fiscal policy or market structure, not decision biases.

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