Don’t Feed the Alligators

Unintentionally, my review of Nudge continues again here with a look at using nudges for non-paternalistic purposes.

A year and a half ago, ScrapperMom and I went to buy a new laptop computer.  We did the research, picked the model we wanted, checked online store inventories, and set out for the store.  At the store, we zeroed in on the model we wanted, having brought print-outs of the exact model number and specs.  After some time, we finally managed to flag down a salesperson who said he would have to go into the back to see if they had that model in stock.

The salesman returned after some time with a clipboard in his hand.  “Would you like the 3 year or 5 year warranty?” he asked.  “Which one comes with it?” I asked.  “Neither,” he said.  Then went on to explain that the laptop comes with a 1 year parts warranty only.  I told him that I didn’t want to buy anything extra.  An argument ensued centering on what would happen if the laptop broke.  I calmly tried to explain that I was willing to take that risk.  Eventually, I managed to persuade him to sell us the laptop without any extended warranty.

Fast forward to last week:  I was in a rental car office in Toronto while visiting on business.  I had booked my rental car through an online travel service a few days earlier, so I wasn’t paying much attention to the questions being asked.  “Do you want the premium insurance or the basic?” the desk clerk asked.  “Basic,” I said.  It wasn’t until I returned the car 6 hours later that I realized I should have said, “I don’t need any additional insurance.”  (The combination of my regular car insurance and the credit card I used for the rental cover all my insurance needs for rental cars.) This small inattention to detail doubled the cost of the rental.  I’m glad that I can pass this cost along to work, but the trick still irritates me.

What’s going on here?  As I learned in Nudge, choice architecture plays a huge role in what choice ultimately gets made.  In the cases above, the default options were arguably not in the best interest of the customer, and furthermore, the whole range of choices was not presented — in neither case was I presented with the option to do nothing, even though this was an option.

Insurance is, unfortunately, a necessary part of modern life. However, people tend to buy insurance in areas that are really not required, such as on consumer electronics, while forsaking it in areas that are important, such as disability insurance. Over the last several years, retailers have made huge profits by selling insurance on things like TVs, DVD players, and computers, and their salespeople have been incentivized to sell this insurance. But, insurance should be purchased for items that would represent true disasters if the insured item is damaged, lost, stolen, gets hurt, or dies. While it sure would be a bummer if your TV died, it wouldn’t be a disaster.

Have you experienced any “missing options” lately?