consumers

‘Micro-costs’ can make us resist change

YALE (US) — A new study suggests that people will stick with a default option even when they face only the smallest costs of switching—like changing the channel on TV.

It only takes pressing a button to switch the channel, but people’s choice of program is heavily influenced by whether they watched the previous program on the same channel, according to a new study by Professors Constança Esteves-Sorenson of the Yale School of Management and Fabrizio Perretti of Bocconi University.

The results, published in the September issue of The Economic Journal, add to a growing body of literature in behavioral economics and have implications beyond TV programming.

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“In cases where choices are consequential, such as in the selection of health plans or retirement accounts, policymakers should strongly consider either requiring individuals to actively choose an initial option or setting the default in such a manner so that it will generally be the best choice for most people,” says Esteves-Sorenson.

Economists have documented in a wide variety of settings that people persist in making choices that seem far from perfect. The most common belief has been that this behavioral inertia stems from the costs of switching. For example, people would rather continue to pay for their monthly gym membership than deal with the hassle of cancelling it.

Esteves-Sorenson and Perretti demonstrate that another factor can also account for this persistence: procrastination.

The authors analyzed TV viewing habits in Italy, a country with only six channels and where virtually everyone uses remote controls. This means that viewers face extremely low costs both in terms of searching for programs and in changing the channel.

Despite these low costs, the choice of program depends substantially on whether the viewer happens to have watched the previous program on the same channel. For example, when the news on a particular channel follows a football game, more men watch the news.

But when the same news program follows a program appealing to women, such as an episode of a romantic series, more women watch the news.

Similarly, more people watch the news on evenings when it follows a popular movie. On average, the researchers find that the audience for a TV program increases by two to four percent for each ten percent increase in the audience of the preceding program.

Examining several potential factors that might account for this effect, the study finds that a form of procrastination on the part of consumers is most consistent with the observed patterns. Viewers appear to underestimate, in the short term, the value of switching.

Previous research on US viewers ascribed viewer inertia primarily to advertising of the next program during the preceding program, hence persuading viewers to remain on the channel. But this form of advertising cannot explain inertia in Italy, as the TV stations there rarely use it.

The Italian TV stations appear to take full advantage of consumer procrastination, intentionally sequencing programs to optimize their overall viewership. The analysis in this study suggests that if they did not do so, their profits would decline by 20 to 40 percent.

Source: Yale University

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