“By Default” –  Consent By Default and Business Models

In 2003, Eric Johnson and Don Goldstein conducted a survey where the people were given two default choices, (i) people were informed that default was; not to be an organ donor (Opt-in) and (ii) other set of people were told that the default was; to be an organ donor (Opt-out). The results of this survey were surprising, in the first default choice where people had to opt-in to be an organ donor, only 42% of people opted-in or choose to become an organ donor. Whereas when people had to opt-out and make a decision that they do not want to be an organ donor, only 12% of people opted-out, 82 % of people choose to remain as organ donors.

All the major countries in European Union have laws and regulation relating to organ donation and it is exciting to see that countries with default opt-out option have an average of 97.55 % of organ donors. Below is a chart which clearly shows the difference between the numbers of organ donors in countries where default is opt-out and the numbers of organ donors in countries where default is opt-in.

Explicit Consent (opt-in, gold) and presumed consent (opt-out, blue)[1]

This study demonstrates one fact that presumed consent accompanied with an option of opting out works far more efficiently and sticks to people and develops adherent behaviour in people.

But the primary question that has to be answered here is that “why do default rules stick?”

Before moving ahead and answering this question let’s take another example to understand the realms applicability of default rules in modern day businesses.

Default rule setting has aided a company to capitalise subscription-based business model and rule the OTT entertainment segment all across the globe. Netflix in India, provides its services on a subscription-based model where a subscriber gets the first month service free of cost and the subscriber has to pay only from the second month. The FAQ section on the Netflix website says “Try us free for 1 month! If you enjoy your Netflix trial, do nothing and your membership will automatically continue for as long as you choose to remain a member.”

Folks in the industry call it as “Negative option marketing”, where people accept a free product are automatically enrolled as members of the subscription plan which carries a monthly fee.

Recently ‘Paytm’ a mobile pre-paid instrument in India introduced an option where a user can automate the process of respective bill payments. A user may now fix a date for bill payment, the Paytm wallet will by default pay the bill on that particular day until a person opts-out.

The point is default rules or settings make life easier and more efficient. There are so many use cases – Think of SaaS automated renewal, think of moving from free to paid services etc.

Default rule sticks because it is an efficient mechanism of making people do something or not to do something. Default rules tends to stick due to power of inertia, it exploits and thrives on basic human tendencies such as forgetfulness or perhaps procrastination or is it laziness. People generally like things which does not require much of an effort. Or is it perhaps because someone else has to take a decision? “the preferred approach is to select the default rule that reflects what most people would choose if they were adequately informed”.[2]

Default rules have existed even in law. For example, copyright ownership rests with the employer, in the employer-employee relationship, unless otherwise specifically agreed upon. The Hindu Succession Act, 1956 has some default settings unless and until a person executes a Will.

With the new General Data Protection Regulations (GDPR) which becomes effective end May 2018 in European Union, the active consent, ie. Active opt-in from a data subject is required to use personally identifiable information. This sure has wide repercussions in various business models.

Have you thought of using the power of default setting in your business? Do you see use-cases where you can use the power of default setting in your business? It is also perhaps time to stop and think through the default settings you may have used earlier in your business.

Author: Manas Ingle, is an Associate with NovoJuris Legal.

[1] Eric Johnson and Don Goldstein, Science Mag, VOL 302, November 21, 2003. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1324774.

[2] N.Craig Smith . Smart Defaults: From Hidden persuaders to adaptive helpers.

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