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Dec 27, 2012 Report No:12-16

Default Effects, Transaction Costs, and Imperfect Information

Author
  • Chris M. WilsonSchool of Business and Economics, Loughborough University
  • Luke GarrodSchool of Business and Economics, Loughborough University
  • Alistair MunroGRIPS
Field Economics
Language English
Abstract

We develop a decision framework with imperfect information to analyze the effects
of transaction costs on the tendency for individuals to remain with a default option.
We demonstrate how transaction costs can be a more important source of such default
effects than commonly thought. A further, potentially surprising result shows that
transaction costs are able to explain why some forms of default effects increase with
the number of options.

Keywords Default effect; transaction cost; imperfect information.
attachment 12-16.pdf