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The Skeptical Shopper: How Default Options Affect Choice By What They Tell Consumers

CHRISTINA L. BROWN ARADHNA KRISHNA*

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*Christina L. Brown is Assistant Professor of Marketing and Aradhna Krishna is Professor of Marketing at the University of Michigan. The authors would like to thank Fred Feinberg, Carl Mela, Joe Urbany, Carolyn Yoon; members of the marketing department at the University of Michigan and the Fuqua School of Business; and members of the University of Michigan Decision Consortium for comments on this manuscript. We would also like to thank Mary Wagner for her help in coding Study 2. Correspondence should be directed to the first author (clbrown@umich.edu).

3 Abstract A “default” option is the choice alternative a consumer receives if he/she does not explicitly specify otherwise. In this article we argue that consumers may treat default designations as though they contain relevant information about the value of the product; i.e., when our preferences are uncertain, we look to defaults to tell us something about them. More specifically, defaults can invoke a consumer’s “marketplace metacognition” (Wright 2002), his/her social intelligence about marketplace behavior (for example why and how marketers attempt to manipulate the behavior of consumers). We demonstrate that how the consumer responds to the default depends on whether this social intelligence is invoked and how it changes the meaning of the default. This “metacognitive” account of defaults leads to different predictions than accounts based on cognitive limitations or endowment: in particular, it predicts that on some occasions low (less expensive) defaults will have a greater positive impact on choice than high (more expensive) defaults. Moreover, it predicts the possibility of negative or “backfire” default effects. We report the results of three experiments that show that how the consumer responds to the default will depend on 1) the ordinal position of the default, 2) whether or not a consumer’s marketplace metacognition is readily accessible, and 3) whether or not a consumer is motivated and able to use marketplace metacognition to interpret the meaning of the default.

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You are purchasing a computer system on-line. There are several options for monitors: 15”, 17”, or 19”. The standard system comes with 15” (the least expensive option), but if you want, you can switch to the 17” or 19” monitor (for more money). You are purchasing a computer system on-line. There are several options for monitors: 15”, 17”, or 19”. The standard system comes with 19” (the most expensive option), but if you want, you can save money by switching to the 17” or 15” monitor. What is the marketer up to? Why do you think the marketer did what he did? Does your answer affect which computer you buy? Almost every consumer has encountered “defaults” when choosing among alternatives: the “default” option is the one the consumer will automatically receive if he/she does not explicitly specify otherwise. Although default options are not restricted to the Internet, the operational advantages of the Internet have made them more pervasive over the past few years. For example, on the Dell Computer website, computer systems come in a pre-packaged combination of RAM memory, hard drive size, disk-drive options, monitor, software, etc. However, if the consumer prefers a bigger hard drive, or a small monitor, she may adapt the package to her preferences by selecting her preferred attribute option from a menu. More notoriously, almost every reader of this article will have encountered the “opt-out” e-mail list, in which the consumer condemns herself to a lifetime of promotional emails unless she takes the time to “deselect” the “send me emails” box. Most existing research on the effects of default options concludes that default options affect choice by taking advantage of consumers’ cognitive and processing limitations. For example, Johnson, Lohse, and Bellman (2002) have shown that consumers who are obliged to “opt out” of an e-mail list are as much as twice as likely to

5 participate in the list than consumers who can explicitly choose between receiving and not receiving the emails, as though they had not noticed the difference. Similarly, Park, Jun, and MacInnis (2000) find that consumers presented with a “fully-loaded” car and given the opportunity to remove optional features for a cost savings end up with a more expensive set of features than those presented with a basic model and given the opportunity to add features for more money. Park et al.’s explanation is related to endowment effects or loss aversion (Kahneman, Knetsch and Thaler 1991): they suggest that people presented with a default alternative shift their reference point to include the features of the default product, framing the forgoing of these features are a loss. In both cases, the implication is that defaults affect choice because consumers are unintentionally manipulated by the marketer’s choice of default. In other words, defaults cause consumer choices to deviate from their true preferences. In this article we argue that consumers may also treat default designations as though they contain relevant information about the value of the product (Prelec, Wernerfelt, and Zettelmeyer 1997; Wernerfelt 1995); i.e., when our preferences are uncertain, we look to defaults to tell us something about them. In particular, in some important circumstances a consumer might conclude that the default option is the one the marketer prefers to sell. In other words, the default is a marketing tactic that is interpreted by a consumer’s “marketplace metacognition” (Wright 2002), his/her social intelligence about marketplace behavior (for example why and how marketers attempt to manipulate the behavior of consumers). We demonstrate that how the consumer responds to the default depends on whether this social intelligence is invoked and what it means to the consumer once invoked. Specifically, we show that how the consumer responds to the

6 default will depend on 1) the ordinal position of the default (i.e., whether or not a lessexpensive or more-expensive alternative is the designated default), 2) whether or not a consumer’s marketplace metacognition is readily accessible, and 3) whether or not a consumer is motivated and able to use marketplace metacognition to interpret the meaning of the default. Importantly, our view of “defaults as a source of marketplace information,” filtered through a consumer’s prior knowledge of the marketplace, suggests different empirical results than would default effects generated by inattentiveness on the consumer’s part (Johnson et al. 2002) or by processing biases such as endowment, anchoring-and-adjustment (Park et al. 2000), and focus-of-comparison effects (Dhar and Simonson 1992). A story based on inattentiveness, anchoring, or focus-of-comparison should apply equally to low (less expensive) and high (more expensive) defaults. A story based on endowment suggests that a high default will have a greater effect on choice than a low default. Previous researchers are undoubtedly correct in their assessment that incomplete or biased processing helps make consumers more likely to choose default items in many circumstances. However, when defaults are information-based, we will show that low (i.e., less expensive) defaults can sometimes have more positive effects than high (more expensive) defaults, a result that cannot be obtained from existing theories. Even more remarkably, information-based defaults may create negative or “backfire” effects: if a consumer believes a marketer is suggesting a default that appears to be in the firm’s best interests but not the consumer’s, consumers may be less likely to choose an alternative when it is the default than when no default is indicated.

7 In our story about default effects, then, the consumer is not inattentive but skeptical and alert, reflecting that defaults can invoke the marketplace metacognition of the consumer to help him/her better predict the value of each alternative (Friestad and Wright 1994, Wright 2002). We present three studies to support our information-based explanation for default effects. In Study 1, we confirm the generally positive effect of default designations on choice among alternatives, and suggest circumstances in which low (less expensive) defaults may have greater positive effects on choice than high (more expensive) defaults. In Study 2, we show that the strength and direction of the default effect depends on whether or not “marketplace metacognition” is clearly invoked, and whether or not subjects see the marketer as acting for or against the self-interest of the consumer. In Study 3, we show that information-based default effects depend on whether the consumer is motivated and able to use his/her marketplace metacognition to interpret that information. THEORETICAL FRAMEWORK What Is a Default and What Does It Do We define a default as the alternative the consumer receives if s/he does not explicitly request otherwise. Defaults are most prominent in cases where a product consists of a standard configuration of features, which a consumer may add to, eliminate, or change (as in our opening Internet example). However, defaults are not restricted to the Internet; all consumer decisions—even innocuous ones or decision not to act—can be said to involve some form of default: at McDonald’s they will put ketchup on your burger unless you tell them not to; the personnel department will assume you do not want to

8 make a contribution to the company pension fund unless you tell them otherwise (Schweitzer 1994), etc. We are interested in “default effects” – the change in likelihood that a particular alternative is chosen when designated as the default versus a control condition when no default is designated. It is possible, after all, that defaults exist but do not change the likelihood of a particular alternative being selected. For example, a computer marketer might identify one system configuration as the default because it is the one they expect to be most popular—this default would make the choice easier, but without changing which computer the consumer ends up with. However, there is substantial evidence that defaults can change the likelihood that a particular item is chosen (Johnson, Bellman, and Lohse 2002; Park, Jun, and MacInnis 2000). The supposed positive effect of defaults on choice has been of great public-policy interest since it suggests that consumers can be made to unintentionally deviate from their “true” preferences by the identification of a particular option as the default. The explanations offered by existing research by and large support the characterization of consumers as accommodating to the perceptual biases imposed by the default frame. These existing explanations fall into two overall categories: attention-based default effects and defaults due to biased processing. We will briefly discuss these to show how they contrast to our own framework. Attention-Based Default Effects. Consumers may use defaults heuristically, to reduce the amount of cognitive effort required to reach a decision (Johnson et al. 2002). In extreme cases the consumer receives the default option because s/he simply has not noticed that a choice is being asked of him(her). Less extremely, the default diverts

9 attention toward the designated alternative and away from thorough consideration of the undesignated alternatives. This explanation is supported by Johnson et al’s finding (Johnson et al. 2002, Study 1) that consumers are far more likely to choose the default when faced with a checkbox that already contains a checkmark (that may be then removed) than when faced with an empty checkbox (that may then be checked). We will refer to default effects created by lack of thorough cognitive effort or inattentiveness on the part of the consumer as “attention-based defaults.” Note that if defaults “work” merely by drawing attention to the default option at the expense of careful consideration of its alternatives, this would affect choice regardless of whether the default option is comparatively inexpensive or expensive. Attention-based explanations for default, therefore, do not provide a clear explanation for why the strength of the default might vary according to its rank. Default Effects Due to Biased Processing. Park et al. (2000) suggest that consumers anchor on the default option and simply fail to adjust sufficiently away from the anchor and toward their stable underlying preference. As evidence for this, they show that subjects presented with a fully loaded car and allowed to eliminate unwanted options ended up with a significantly more expensive car than subjects presented with a strippeddown model and allowed to add options. The difference in price paid over the two conditions is attributed to an anchoring-and-adjustment process (Chapman and Johnson 1999). A related mechanism for such anchoring might be a “focus-of-comparison” effect (Dhar and Simonson 1992), in which a consumer processes more information and more favorable information about the focal item than about the alternatives it is being

10 compared to. In other words, identification of an alternative as the default encourages consumers to treat it as the focus of comparison. As Park et. al. (2000) suggest, this anchoring on defaults might also be attributed to endowment or loss aversion (Johnson et al. 2002; Park et al. 2000; Schweitzer 1994; Sen and Johnson 1997). In an endowment-based account, consumers imagine possessing the default option, thereby reframing all lesser alternatives as losses (Kahneman, Knetsch, and Thaler 1991; Sen and Johnson 1997). A key feature of the endowment mechanism is that subjects are less willing to give up the features of their reference option than they are willing to pay to add features to a lesser option (“willingness to accept>willingness to pay”). Thus, endowment clearly predicts that high-end defaults will be stronger positive effects on choice than low-end defaults (Park et al. 2000). Information-Based Defaults Our premise is that attention-based and processing-bias explanations omit an important characteristic of defaults in the real-world marketplace: defaults may contain information about the value of the choice alternative, which is interpreted in light of a consumer’s market knowledge. Wernerfelt and colleagues (Prelec, Wernerfelt, and Zettelmeyer 1997; Wernerfelt 1995) have shown, for example, that consumers can extract information about the preferences of other consumers from the composition of the choice set. If a consumer is uncertain about his decision, but knows something about his computer preferences relative to the preferences of other consumers, this can affect his choice. Prelec et al. (1997) give the example of museum-goers choosing from among rain ponchos of three ordered sizes. Subjects choose either from a 32” 34” and 36” set, a 34-36-38” set, a 36-

11 38-40” set, or a 38-40-42” set. Even if a subject had no idea how long a poncho typically is, each presumably knew whether he/she was short, medium, or tall relative to the general population. Thus, the rank or ordinal position of the choice alternative was more predictive of choice than the absolute length of the poncho. The authors refer to this phenomenon as “rank-order inference.” In the real-world marketplace, the signal offered by the default designation may represent not just the will of other consumers but also the will of the marketer. If the consumer comes to believe that the default is what the marketer prefers to sell, it may activate his/her social knowledge about marketplace tactics and how to respond to them (his/her “marketplace metacognition,” Wright 2002).1 When marketplace metacognition is invoked, the default means something new: it is an attempt to persuade that must be considered more skeptically. Thus, the perceived cause of the default will have a powerful impact on the value a consumer imputes to the designated alternative. We propose that whether or not this marketplace metacognition (MM) is invoked in a default context may depend on which item is identified as the default. Specifically, the ordinal position of the default (its expense relative to its alternatives) may have an impact: items that are the most or least expensive in the set of alternatives are more likely to invoke MM and thus generate information-based effects. Consider our opening example in which a consumer may choose among three different monitors

Borrowing from Wright (2002), we make a distinction here between “marketplace metacognition” and “persuasion knowledge.” Persuasion knowledge is defined as socially focused market intelligence such as naïve theories and beliefs about marketers’ motives, strategies, and tactics (see also Moreau, Krishna and Harlam 2001); and the folk psychology of persuasion. “Marketplace metacognition” includes not only such socially focused metacognition but also self-focused market-related metacognition such as self-knowledge and self-control, i.e., “knowledge about one’s own knowledge” (Alba and Hutchinson 2000). Our claim is that both self- and socially-focused market intelligence will affect how one responds to market events such as defaults.

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12 (small/inexpensive to large/expensive) in making a computer purchase on-line. The marketer has three choices when it comes to identifying a default: the least expensive, the middle option, or the most expensive. Previous research (Wegener and Petty 1995, 2001) has suggested that extremeness affects evaluative inference (Stapel and Koomen 2000), and that people are more likely to try to correct a bias if it is blatant rather than subtle (Stapel, Martin, and Schwartz 1988). Thus we argue that if a marketer persistently chooses one of the extreme options, this extreme behavior may be more likely to be noticed, identified as a bias, and require an explanation. If the most expensive alternative is the default, the consumer is likely to become skeptical of the marketer’s intentions. In contrast, if the least expensive item is the default, the marketer may appear to be acting counter to expectations and in the consumer’s self-interest rather than her own. She is more likely to accept the low default but discount the information offered by the high default. Thus, in cases with many options, low defaults will be more effective at changing choice than high defaults: Study 1 thus seeks a simple empirical confirmation of the impact of default designations on choice. We expect to re-affirm the positive effect of default designation on choice among multiple alternatives relative to these same alternatives without a default designation. We also explore conditions under which “low” defaults might be more positive drivers of choice than “high" defaults, to support our contention that consumers treat defaults as though they contain information about value. We expect the strength or power of the default to affect choice may depend on which alternative is identified as the default, because identifying lowest or highest-priced options as the default sends different information to the consumer.

13 H1: Default designations will have a positive impact on the choice of the designated alternative (relative to the same alternative without such a designation). H2: A default designation for the lowest-priced alternative will have a more positive impact on its choice than a default on the highest-priced alternative (relative to the same items without such a designation).

STUDY 1 Design and Procedures One hundred and seventy-eight undergraduates participated in study 1 for course credit. Subjects completed a questionnaire described as a study of mass customization on the Internet, involving the specification of six attributes from the websites of (fictional) manufacturers in three product categories— the number of musical voices and styles for music keyboards, the monitor size and hard drive size for computers, and meal options and transportation options for vacation packages. (See Table 1 for a complete description of the attribute levels.) These product attributes were chosen because they are typical of those customizable via the Internet (see www.dell.com, and www.libertytravel.com for examples), and because they were expected to be somewhat familiar to our subject base. The specific attribute levels were chosen from a web search of these product categories. Order of presentation of the categories was counterbalanced. Each product attribute offered three different ordered levels (low, middle, high). For each of the six attributes, subjects chose one of the three options – low, middle or high attribute level. --------------------------------------------Table 1 about here. ---------------------------------------------

14 Subjects were randomly assigned to one of four between-subjects experimental conditions—no default, low option indicated as default, middle option as default, or high option as default. Thus, the design of the study was mixed, with default type (none, low, medium, high) as a between-subjects factor and the six product attributes a within-subject factor. Subjects read a brief description of each of the product attributes, then were asked to indicate their choice among the three alternatives for each of the six attributes. Subjects in the control “no-default” condition were asked to indicate their preference by circling the option of their choice.2 “Default” subjects saw either the low, middle or high option indicated as the default for each of the six attributes. Their instructions reported that “the manufacturer has indicated a “default” attribute—the value you will get unless you indicate otherwise by circling a different option.”—but no other reason for this default attribute was given. Relative prices were expressed as the difference in dollars between each pair of options (i.e., a non-default option might be described as “30$ more” or “30$ less” than the default option; see figure 1). --------------------------------------------Figure 1 about here. ---------------------------------------------

This control condition allows us to eliminate many competing explanations for the effects of default on choice, by allowing us to compare choice of an item designated as the default to its exact peer without such a default designation– the same product, with the same competitors, at the same difference in price, presented in the same order. Thus, our results cannot be explained by differences in basic preferences for trading off increased quality and price, by effects of order of presentation, or by the core tendency of subjects to choose a compromise option.

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15 Results We first performed a simple test of difference in proportions to determine whether default had a significant effect on the choice probabilities of the three alternatives.3 Overall choice probabilities are given in table 2. A chi-square test confirms that default affected choice probabilities (χ2(6) = 30.20, p ≤ .0001); in each case, choice likelihood increased versus the control condition when the item in question was the default: 39.77% versus 30.43% for the low option; 58.71% versus 49.28% for the middle option, and 25.76% versus 20.29% for the high option. Figure 2 illustrates these effects graphically. --------------------------------------------Table 2 and Figure 2 about here. --------------------------------------------We then performed a fixed-effects conditional logit analysis (McFadden 1974) to determine whether this overall effect of default on choice was significant, and whether it occurred regardless of whether the designated default is the low, middle, or high option in an ordered choice set. (Results are reported in table 3.) The conditional logit model treats each available alternative as a separate observation, thus including three observations for each subject for each choice problem. The dependent variable of the model was whether or not the particular alternative was selected by the subject. The independent variables included two indicator variables representing the ordinal position of the option (middle=0,1, high=1,0). These position variables indicate
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For Studies 1, 2, and 3, we ran each of these models including interactions between the attributes and the condition variables; none of these interactions were significant, suggesting that the manipulations had essentially the same effect for the six attributes. We therefore present the results pooled over the six attributes for each of the three studies.

16 whether ordinal position affected choice probability. If, for example, the middle (high) indicator is positive and significant it implies that people are more likely to choose the middle (high) option compared to the low option (regardless of default condition). A second set of indicator variables allowed us to test for default effects while controlling for differences in underlying preferences for each of the three options (by comparing choice of a particular alternative when designated as the default to the same alternative without such a designation). In model 1, this ‘set” consisted of a single variable indicating whether or not the alternative was designated as the default. In model 2, we include three separate indicators for the three different default types (low, medium and high) to determine if there were any significant differences in default effects based on the ordinal position of the default option. --------------------------------------------Table 3 about here. --------------------------------------------Hypothesis 1: Overall Effects of Default (Table 3, Model 1). We first look at the likelihood of choosing the low, middle and high options when none is specified as the default. The indicator variable for the middle alternative is positive and significant (z = 7.769, p ≤ .001; see table 3), whereas the indicator variable for the high alternative is negative and significant (z = -3.598, p ≤ .059), showing that subjects tend to prefer the middle option over the low or high options (when no option is specified as the default). This is consistent with a well-documented tendency for people with uncertain preferences to favor compromise options (Simonson 1989). The effect of the default variable is

17 significant and positive, confirming hypothesis 1: a default designation increases the likelihood an alternative is chosen (z = 4.968, p ≤ .000). Hypothesis 2: Low versus High Default (Table 3, Model 2). In a second analysis we replaced the single default variable with three default indicator variables (i.e., low, medium, high). The base case is therefore the control (no default) condition. The low default indicator, for example, shows the effect of the low default on choosing the low option (vs. the control condition). There are significant positive default effects in the case where the low item is the designated default (z = 3.731, p ≤ .000; see figure 2 and table 3), and where the middle item is the default (z = 2.083, p ≤ .037), but the default effect for the high option does not reach significance (z = 1.243, p ≤ .214). Thus, default effects appeared to be slightly weaker for higher-cost alternatives. However, a test of a model allowing low and high defaults to differ did not quite outperform a model restricting the coefficients for low and high defaults (χ2(1) = 2.40, p ≤ .122). Thus, hypothesis 2 received only directional support. DISCUSSION Study 1 confirms a significant positive effect of a default designation on choice of a particular alternative over and above the same alternative without such a designation. Furthermore, study 1 suggests conditions exist under which a low (less expensive) default might have a greater positive effect on choice than a high (more expensive) default. This result could not be derived from an attention-based or focus-of-comparison mechanism,

18 and is in conflict with an endowment mechanism.4 Our results are directionally consistent with our specific claim that a high default may be discounted by the sense that it might be the result of a marketer’s attempt to persuade. Although the overall positive effect of default in study 1 was quite strong, study 1 suggests that ordinal position alone may not invoke MM, or at least may not invoke it for all subjects. Furthermore, a “low>high” effect would be at odds with previous research, specifically Park et al. 2000, which showed high defaults that had a greater positive effect on choice than low defaults. In study 2, we address the question of why high defaults may be quite positive in some cases (e.g., Park et al. 2000) and weak or even negative in others. We focus on a critical difference between the paradigm offered in our study 1 and that used by Park et al. In Park et al. (2000) and related research such as Dhar and Simonson (1992), the experimental context did not involve an attempt by a marketer to persuade the subject, which plays a critical role in our explanatory framework. Our “information-based” explanation for defaults suggests that it is precisely the perception that the marketer is attempting to persuade the consumer that changes what the default “means” to him/her. These researchers have shown that outside a persuasive context biased processing will lead to positive effects of default in general and high default in particular. We argue that when consumers feel that marketers are trying to bias their (consumers’) choices, they
Note that a similar result is given even if consumers are informed only about other consumers (and not about marketers), if we also assume that individual preferences correlate with product experience. Consider the heuristic “buy the least expensive item of acceptable or better quality.” Assume that most consumers are not quite certain about what “acceptable quality” might be. Following the reasoning given by Prelec at al. (1997), if a consumer considers his/her needs to be modest relative to other consumers’, s/he will purchase at or below the default. If he considers his needs to be average, he will purchase at the default. High end users, however, are likely to be more experienced and more certain about their preferences (Coupey, Irwin, and Payne 1998), and therefore relatively unaffected by defaults. This explanation implies the same aggregate result hypothesized in hypothesis 1: Low defaults will be more powerful than high defaults, because low-end and medium users will respond to low default, only middle-of-the-road users will
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19 will try to counteract the effects of the persuasive attempt by counterarguing – by reasoning against the perceived bias (Wegener and Petty 1995, 2001). In study 2, we will show that the accessibility of MM in a persuasive context interacts with the ordinal position of a default to explain why a high default is powerful and positive in some cases and weak or even negative in others. Thus, when MM is not accessible, we anticipate that high defaults will be significantly positive, as in previous research. 5 In contrast, when MM is accessible, we expect that consumers presented with a high (more expensive) default will be more likely (than controls) to discount or even reject it (vs. when it is not accessible), because the marketer appears to be acting in its own self-interest (by attempting to increase sales) rather than in the interests of the consumer (Campbell and Kirmani 2000). However, consumers presented with an Inexpensive default may not perceive it as a biased attempt to persuade, because by “recommending” an inexpensive product, the marketer appears to be acting against its own self-interest, for the benefit of the consumer. Study 2 also reverts to a choice between only two alternatives (similar to both Dhar and Simonson 1992 and Park et al. 2000). This strikes us as a more conservative test of our theory, because a default designation among only two alternatives should be perceived as less extreme behavior on the part of the marketer than a default designation from among three alternatives. However, if MM is the driving force behind study 1’s “low>high” results, we should get a similar result in study 2: a positive effect of default when the marketer (counter to

respond to middle default, and response to high defaults will be minimal. We explore the issue of individual differences in responsiveness to defaults further in Study 3. This is consistent with Wegener and Petty’s observation that counterarguments (which would lead to negative default effects) are more effortful (Wegener and Petty 1995, 2001). When subjects are not concentrating on MM, support arguments in favor of defaults seem to come more naturally to them.
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20 his/her own interests) recommends the less expensive item and skepticism, resulting in a reduced or negative effect, when the marketer recommends the more expensive item. H3: There will be an interaction between the effect of ordinal position of the default and accessibility of marketplace metacognition on consumer choice: a) When a more expensive alternative is the default and marketplace metacognition is not accessible, there will be a significant positive “default effect:” i.e., subjects will be more likely to choose the expensive item relative to its control. b) When a more expensive alternative is the default and marketplace metacognition is accessible, the “default effect” will be weaker or even negative. c) Marketplace metacognition will have no effect on the choice likelihood of a low (less expensive) default. The Role of Counterarguing in Creating Default Effects Skepticism about the marketer’s intentions or abilities may not cause one’s overall attitude toward the market to change, but simply change the reasons that are brought to bear on the decision. Work by Wegener and Petty (the “Flexible Correction Model;” 1995, 2001) has suggested that if subjects perceive a bias to be present in an argument, they will be more likely to counterargue (to resist the bias) than if they do not perceive such a bias. Thus, when subjects recognize a high default as a biased attempt to persuade (biased by the marketer’s interest in greater sales), they are more likely to argue against choosing the high item than when it is not the default. If MM is not accessible the default may not be recognized as a persuasive attempt, thus counterarguments would be less likely. In contrast, recommending a low default is less likely to be perceived as an attempt to bias one’s behavior, so the accessibility of MM should not have an effect.

21 MM-driven skepticism might instead lead consumers to choose the less-expensive option because it involves less financial risk (i.e., if I must make a purchase from a marketer whose intentions are questionable, the least expensive will get me into less trouble). If MM operates in this fashion, there should be a main effect of the accessibility of MM on choice of the high option. Alternatively, subjects might conclude that the marketer is not really competent to provide advice; in this case there should be no real effect of default designation at all. Thus in study 2, we will also investigate the mechanisms through which MM affects choice by asking subjects explicitly for the reasoning behind each of their choices. Subjects who are discounting the information present in the default should demonstrate this by giving counterarguments, i.e., reasons to reject the default item (Brown and Carpenter 2000). Limiting the alternatives each subject sees to only two will also make it easy to determine whether subjects are taking a supporting (arguing for the choice) or counterarguing approach (arguing against the unchosen item). If MM is driving choice effects by making subjects more skeptical in the presence of a perceived bias, then counterarguing should mediate the effects of default on choice. H4: When a more expensive item is the default, and subject’s marketplace metacognition is made more accessible, the subject will be more likely to report counterarguments (reasons to reject the unchosen item) than when marketplace metacognition is not explicitly made accessible. However, when the less expensive item is the default, accessibility will have no effect on the likelihood of counterarguments. H5: The likelihood of counterarguments will mediate the effects of default and accessibility of marketplace metacognition on choice.

22 STUDY 2 Manipulations We reasoned that giving subjects more information about the status of the marketer’s business would make subjects’ marketplace metacognition more accessible. By reminding them of the marketer as a business with its own goals and motives (Campbell and Kirmani 2000), we expected to enhance subjects’ motivation to “hold valid agent attitudes” and concern about manipulation (Friestad and Wright 1994, p. 9). With this in mind, we created a simple description of “Allbuy.com,” an Internet retailer. Subjects in the “limited information” condition saw a single paragraph: Allbuy.com is an Internet-based retailer of a wide variety of products— from electronic goods such as computers and keyboards to consumer services such as vacation packages. They do not make the products themselves but offer a wide variety of products that are available elsewhere. Allbuy allows the customer to choose among several models for each product by specifying its attributes: for example, you can customize what type of monitor and how large a hard drive comes with the computer you order, or how many meals come with your vacation package. In the “enhanced information” condition, we added a second paragraph describing the strengths and weaknesses of Allbuy.com as a business: Allbuy has become known for its large and well-trained staff dedicated to selecting a high-quality assortment for presentation on its website. Allbuy has given large discounts in the past but is currently experiencing great cash-flow difficulties, and there is some chance it will go out of business in the next few months if customers cannot be convinced to spend more money very soon. Note that if the additional information merely serves to lower subjects’ overall opinions of Allbuy.com or make them seem less trustworthy, the effect of the information on default would be to reduce the size of the default effects regardless of which item is

23 identified as the default. Thus, the effect of the information would be to reduce the size of default effects regardless of which item is identified as the default. In other words, consumers should fully discount a low or a high default because the marketer is not a credible source of information. Our hypotheses, however, suggest that marketplace metacognition will reduce effects on choice for high defaults but that positive default effects will persist for low defaults regardless of MM (hypothesis 3 above). Ideally, therefore, the additional text in our “enhanced information” condition should not result should in lowering overall opinions of Allbuy.com. It should include both positive and negative features, so as to be as close to affectively neutral as possible. In this way, subjects motivated to think well of the marketer can do so, but subjects motivated to question the marketer’s intent may do that instead. A pre-test comparing the limited and enhanced descriptions of Allbuy.com showed no significant differences in attitude (good/bad; favorable/unfavorable; negative/positive) between the versions. Design and Procedures Ninety-six undergraduates participated in study 2 for an eight dollar cash payment. Subjects in study 2 saw the same six problems as those in study 1 (hard drive and monitor size for computers; number of musical styles and voices for electronic keyboards, and meal and transportation options for vacation packages). To simplify interpretation of results and to reduce the number of experimental cells, each subject saw only two options per attribute – called “low” and “high.”6 Thus, the design of the study was mixed, with default type (none, low, or high) and information (limited or enhanced) as between-subjects factors and the six product attributes as a within-subjects factor.
6

The low and middle attribute levels from Study 1 were retained and the high attribute level was dropped.

24 Subjects read the introductory paragraphs (containing the information manipulation) and were told that their product choices would help us assess the likely mix of products Allbuy.com would sell over the next few months. Then, subjects saw all six problems in counterbalanced order. To determine whether the likelihood of counterarguments might be affecting our default results, subjects were asked to write a brief sentence explaining why they made the choice they did after each of the six problems (each response was coded as primarily supportive of the choice or counter to the unchosen item). Finally, subjects answered several seven-point scale questions assessing overall attitude towards Allbuy (good/favorable/positive), opinions of Allbuy’s product quality, price, stability, knowledgeability, sincerity, trustworthiness, reliability, and whether or not the firm was “trying to serve their own needs” rather than “trying to serve my needs”. Results Hypothesis 3: Choice Results. Table 4 shows the choice results for each cell. A chi-square test confirms that the overall likelihood of choosing the high or low option differed by experimental cell (χ2(5) = 11.72, p ≤ .02). Over the entire dataset, 51.0% chose the low option and 49.0% chose the high option. Table 4 reports the cell means and figure 3 illustrate the results graphically. --------------------------------------------Figure 3 and Table 4 about here. ---------------------------------------------

25 We used a logit model with robust standard errors to determine the effects of the manipulation on choice (see table 5). Since there were just two options to choose from, the dependent variable was “choice of the high option”. Independent variables were indicators for the low and high defaults, an indicator variable for the information condition, and interactions of defaults and information. 50.5% of subjects chose the high option in the limited information condition versus 47.5% in the enhanced information condition (z = 1.11, n.s.). Thus it appears that the information manipulation did not encourage subjects to dislike Allbuy or see it as more risky, thereby inclining them towards the less-expensive choice. The low default increased choice of the low option (57.8%, vs 50.0% in the control condition; hypothesis 3c), while the high default increased choice of the high option (55.0% vs. 50.0% in the control condition). Consistent with our expectation that only high defaults would be interpreted differently when MM was accessible, the high default* information interaction was significant (z = -2.22, p ≤ .026) but the low default* information interaction was not (z = .12, n.s.). Thus, hypotheses 3a, 3b, and 3c are supported. In the “enhanced information” condition (see figure 3), the high default had a slightly negative effect on choice (47.9% vs. 54.4%, n.s.). The pattern was reversed in the “limited information” condition: the high default increased choice of the high option (62.1% vs. 45.8%, z = 1.643, p ≤.051). The low default had a slightly positive effect on choice in the enhanced information condition (59.4% vs. 45.6%, z = 1.353, p ≤ = .09), but it had little effect on the choice of the low option in the limited information condition (56.2% vs. 54.2%, n.s.). This confirms hypothesis 3c and previous research (Park et al. 2000). Thus, we find that although expensive defaults may have a positive effect on

26 choice in the limited-information condition, they can have a limited or even negative effect in the enhanced information case. Finally, we measured attitude as the mean of a subject’s response to the good/favorable/positive scale questions. Mean attitude toward Allbuy was positive (2.447 on a 7-point zero-centered scale; significantly different from 0, t(93) = 6.233, p ≤ .0001). An ANOVA showed no significant effect of either manipulation (information, default type) or their interactions on good/favorable/positive scale questions; thus, any choice effects may not be attributed to a generally more negative attitude toward the manufacturer. Also, neither the default manipulation nor the information manipulation significantly affected the perceived price, quality, or trustworthiness of the marketer, nor did the manipulations affect the perception that the marketer was serving his own needs rather than the customer’s. --------------------------------------------Table 5 about here. --------------------------------------------Hypothesis 4: Likelihood of Counterarguments. We now turn to the idea that MM works by making counterarguments more likely in the high default case. Reasons for choice provided by subjects were coded by two judges. Each judge coded the reasoning as either a “support argument” or a “counterargument”. A “support argument” was a positive reasoning strategy in favor of the chosen option (for example, “bigger is better”). A “counterargument” was a negative reasoning strategy against the unchosen option (for example, “I don’t really need a big hard drive.”). Inter-rater agreement after initial coding was 90.81% (kappa = .8128, z = 19.26, p ≤ .001); conflicts were resolved by discussion.

27 Across all conditions, 45.3% of subjects offered counterarguments in explanation for their choice. A chi-square test confirmed that the percent of counterarguments differed significantly by experimental cell (χ2(5) = 13.56, p ≤ .02). Subjects in the enhanced information condition were not more likely to counterargue than subjects in the limited information condition (45.3% vs. 45.3%), suggesting that the information condition itself did not make subjects more skeptical. Furthermore, subjects exposed to a default (either high or low) were slightly less likely than control subjects to counterargue (39.3% vs. 46.3%, although this difference was not significant), suggesting also that the mere presence of a default did not make subjects skeptical. However, as expected, subjects in the high default/enhanced condition were more likely to report counterarguments (46.8%) than were subjects in the high default/limited condition (33.0%, z = 1.952, p ≤ .025). Information condition had no effect on counterarguing for subjects exposed to a low default (51.6% vs. 48.4%, n.s.). This is consistent with hypothesis 4, which proposed that making marketplace metacognition more accessible would increase counterarguing against the more expensive option (as subjects attempt to correct for perceived bias) but that MM would have no effect on counterarguments when the less expensive option was the default. Hypothesis 5: Mediating Effects of Counterarguing. Hypothesis 5 proposed the likelihood of counterarguing would mediate the effects of default and information conditions on choice. Table 5, model 1 shows the effects of information and default on the likelihood of choosing the higher option. Table 5, model 2 shows the effects of these same conditions on the likelihood of counterarguments, confirming that subjects in the high default/enhanced condition were more likely than subjects in the high default/

28 limited condition to counterargue (z = 2.74, p ≤ .02). Finally, as shown in table 5 (model 3), when “counterargument” was added as a covariate to our original analysis, it had an extremely powerful effect on choice (z = 12.81, p ≤ .001), and the effects of default as well as the default*information condition become statistically insignificant (z = -.06, n.s.). In other words, the change in likelihood of counterarguments fully mediated the effects of default, information, and their interactions on choice, confirming hypothesis 5.

DISCUSSION Study 2 confirms that subjects treated the default as though it contained legitimate information about the marketplace. One way to understand the difference between study 1 and study 2 effects is that the mere presence of a default designation may not by itself convey information about preferences to a consumer unless it is interpreted by his/her marketplace metacognition. If one has no theory about why a marketer chose to designate a particular item as the default, the designation can only affect behavior through attention-based or biased-processing mechanisms described by previous researchers. Making marketplace metacognition more accessible by reminding subjects of the marketer’s business status changed the meaning of the default: instead of being an unbiased recommendation, it was evaluated in the context of the consumer’s expectations that businesses will act in their own financial self-interest by attempting to increase sales.. MM had this effect not by because it made subjects pessimistic about the quality of the marketer’s advice, or by changing overall attitudes toward the marketer, but because it gave subjects a motivation to draw a particular conclusion and making motivation-consistent reasons more accessible. When a firm in trouble offers a high

29 default, it serves to make counterarguments (reasons against the default) more accessible. In contrast, when a firm in trouble offers a low default, consumers do not view it skeptically and do not attempt to counterargue its effects. Explanations based on discounting of the marketer’s abilities or based on differences in perceived financial risk imply a fairly involved cognitive process in which subjects review the information provided by the default, draw a conclusion about the risk, trustworthiness, or competency of the marketer, and correct their initial inclinations according to this conclusion. Our explanation is much simpler and less cognitive demanding of the consumer – skepticism in the presence of a high default merely changes the relative accessibility of reasons for and against choice. It does not require the consumer to draw a thoughtful or permanent conclusion about the marketer’s abilities and intentions. Although she might do so, our theory does not require it and study 2 does not show that she has. In study 3, we provide additional evidence that marketplace metacognition is the construct underlying information-based defaults. In particular, we propose that individuals differ in the degree to which MM is well-formed and thus accessible (Bearden, Rose, and Hardesty 2001). Secondly, we distinguish MM from category expertise. Although the two are likely to be correlated, they will generate different default effects. Consumers extremely high in category-level expertise are likely to have developed well-defined preferences (Coupey, Irwin, and Payne 1998). Expert consumers may in fact have plenty of marketplace metacognition but no motivation or need to access it. They know what they want. In contrast, novice consumers have a motivation seek

30 outside information in defaults, and to rely heavily on external sources of advice or information. However, extracting information from defaults requires some degree of naive theory about the marketer's intentions. Thus, novice consumers who are also low in MM will not be able to access theories to distinguish between the signal provided by low, rather than high, default effects. Default effects for these novice/low-MM consumers will resemble the high>low pattern created by positively biased processing and established by Park et. al 2000. In contrast, novice consumers who are high in MM will become skeptical only of high defaults, but not low, creating the low>high effect established in study 2. In other words, in both studies 2 and 3 the accessibility of MM creates information-based defaults; in study 2 this is done via experimental manipulation, whereas in study 3 this is a measured individual-difference variable. In short, information-based default effects require that consumers be both motivated and able to access marketplace metacognition to interpret market signals. Thus, expertise and MM should interact to create the effect. Thus, study 3 will show both convergent and discriminate validity by showing individual-difference effects that are inconsistent with expertise alone and require MM to explain them. H6: Subjects with low levels of expertise will be more subject to default effects than subjects with high levels of expertise. H7: Subjects with low levels of expertise and low levels of marketplace metacognition will be more positively affected by more expensive default than less expensive defaults, relative to their controls. H8: Subjects with low levels of expertise and high levels of marketplace metacognition will be more positively affected by less expensive defaults than more expensive defaults, relative to their controls.

31 We adopt the 31-measure “consumer self-confidence scale” developed by Bearden, Hardesty, and Rose (2001) as an appropriate measure of marketplace metacognition. The Bearden et al. scale is divided into two component factors: “Decision-Making Self-Confidence” is concerned with a consumer’s self-knowledge (his/her self-perceived ability to make effective decisions). “Protection Motivation” is concerned with a consumer’s social knowledge of the marketplace (i.e., his/her “persuasion knowledge”), including his/her ability to protect himself from being misled or deceived. These two components correspond very well to the self and social aspects of market knowledge that Wright (2002) suggests are critical components of marketplace metacognition. STUDY 3 Design and Procedures Study 3 was similar to the enhanced-information cells of study 2; each subject saw the same two alternatives for each of the six problems, in counterbalanced order. Because we were seeking to understand the accessibility of marketplace metacognition, all subjects were exposed to the enhanced information. Thus, the design of the study was mixed, with default type (none, low, or high) as a between-subjects factor, the six product attributes as a within-subjects factor, and marketplace metacognition and category expertise as measured variables. Subjects then completed the same attitude scales as in study 2, and completed the 31 measures contained in Bearden et al.’s Consumer SelfConfidence Scale ( 2001; labeled “Final Questionnaire”). Finally, subjects reported their self-perceived expertise with each of the three product categories on a 7-point scale.

32 Results Sixty undergraduate subjects participated in study 3 for a $6 cash payment. Marketplace metacognition scores were calculated by summing across all 31 selfconfidence measures for each subject. Subjects were then divided into low/high MM groups via a median split based on their mean response to the scales (with negative items reverse-scored). Subjects were also divided into novices/experts via a median split on the expertise scales. A chi-square test confirms that there were significant differences in choice probabilities based on experimental conditions (χ2(11) = 18.56, p ≤ .069). A logit analysis with robust standard errors used “chose high” as the dependent variable, and indicator variables for low default, high default, novice status, and low/high MM status, and their interactions. Table 6 shows the choice probabilities for all subjects broken out by novice/expert status and by low/high MM. Figure 4 shows the results graphically. --------------------------------------------Table 6 and Figure 4 about here. --------------------------------------------Hypothesis 6: Novices versus Experts. There was a negative main effect of novice status on choice of the high option (i.e., experts prefer expensive products; z = -2.15, p ≤ .016): Novices in both the low-default condition (53.5% vs. 49.0%) and the high-default condition (54.7% vs. 51.0%) showed an increased likelihood of choosing the default relative to its control. In contrast, experts showed slight decreases in the likelihood of choosing the default, although these decreases were not by themselves significant (35.6% vs. 37.6% control for the low default condition, and 60.2% vs. 62.5% control for the high

33 default condition). Taken together, these results show a significantly higher default effects for novices than for experts (z = 3.998, p ≤ .001). Thus, hypothesis 6 is supported. Hypotheses 7 and 8: Low versus High-MM Novices. H7 and H8 together proposed that low-MM novices would not become skeptical, but that high-MM novices would. Thus default effects for low-MM novices should be positive, particularly for high defaults, consistent with the low-information cells for study 2 and with Park et al. 2000 (hypothesis 7); in contrast, default effects for high-MM novices should be positive for low defaults and weak or negative for high defaults, consistent with the enhancedinformation cells for study 2 (hypothesis 8). The logit analysis showed a significant threeway interaction between high default, high MM, and novice status consistent with these hypotheses, such that low-MM novices responded positively to high defaults but highMM novices responded negatively (z = -2.38, p ≤ .01). Similarly, there was a modest three-way interaction between low default, high MM, and novice status, such that lowMM novices did not respond to low default but high-MM novices responded positively (z = -1.39, p ≤ .082). Table 6 and Figure 4 illustrate these differences clearly. Low-MM novices were significantly more likely to choose the high default versus its control (55.9% vs. 40.0%). They were slightly more likely to choose the low default versus its control (61.9% vs. 60.9%), although this difference was not by itself significant. Thus, hypothesis 7 was supported. In contrast, high-MM novices were somewhat less likely to choose the high default versus its control (52.8% vs. 62.5%), and somewhat more likely to choose the low default versus its control (45.5% vs. 37.5%). Thus, hypothesis 8 was confirmed.7

7

Figure 4 also illustrates an interesting if unanticipated effect: High-MM experts (who are confident that they want the high option specifically) reacted negatively to low defaults: 31.0% of high-MM experts

34

GENERAL DISCUSSION We have presented a series of three experiments supporting our explanation that under some circumstances consumers treat defaults as though they contained information about the relative value of the alternatives (Prelec et al. 1997). More specifically, they are consistent with our claim the consumer treats defaults as though they tell her something about the intentions of marketers themselves. To interpret this information, the consumer calls on her social intelligence of the marketplace, her “marketplace metacognition” (Wright 2002). Thus, conditions that make marketplace metacognition more accessible also serve to moderate default effects. However, these effects of default are not uniformly positive. Selecting a high (more expensive) item as the default may even have a negative (backfire) effect. These results are not explainable by mechanisms proposed in previous research: attention-based mechanisms make no prediction about the strength of default based on relative expense, and loss aversion or endowment-based explanations predict the opposite result (that high defaults will be stronger than low defaults). We do not mean to suggest that these mechanisms are not operative, but argue that they cannot fully explain our data. Thus, our results add to the explanations provided for default effects in the literature. When defaults are information-based, the meaning of the default to the consumer changes based on what metacognitions are invoked (Loewenstein 2002). In Study 1, we suggested that manipulating the “extremeness” (ordinal position) of the default may make

choose the low item when it was the default, versus 39.9% when it was not. This suggests perhaps that the content of the MM of experts differs from that of novices, for example it may include the notion that manufacturers endorsing inexpensive goods are trying to pawn off low-quality items. We will discuss differences in the content of MM in the concluding discussion of this paper.

35 consumers more skeptical of high defaults and more accepting of low defaults. However, Study 1 results implied that information-based defaults would not be particularly powerful unless the potential information contained in the default were interpreted; i.e., unless the consumer brought to bear a theory or theories about why a marketer might make a particular item the default. In other words, a default is not informative unless the consumer has an idea what it means. In study 2, we confirm this idea that the ordinal position of the default and a consumer’s marketplace metacognition interact to create information-based default effects. In doing so, we also shed some light on why previous researchers have found a positive effect of expensive defaults (Park et al. 2000), whereas we have found negative effects in some cases. Moreover, study 2 provided some support for the cognitive process underlying MM effects: Rather than directly making consumers more pessimistic about the marketer’s abilities, the accessibility of MM appears to have changed subjects’ motivation to draw a particular conclusion, making motivation-compatible reasoning more accessible (Brown and Carpenter 2000; Kunda 1991; Wegener and Petty 1995). Thus, counterarguments (arguments against accepting the default) were highly accessible in the high default case (when the marketer presumably was acting in its own self-interest and against the consumer’s). In contrast, the same accessibility made support arguments highly accessible in the low default case (when the consumer was more favorably inclined toward the marketer because it appeared to be acting against its own self-interest and for the consumer’s). The reasons—specifically the counterarguments--made available via marketplace metacognition fully mediated the effects of the accessibility

36 manipulation on choice, providing strong evidence for our proposed theoretical mechanism. In study 3, we showed additional support for information-based or “metacognitive” defaults in the form of convergent and discriminant validity. We saw that the accessibility of marketplace metacognition varies across individuals, resulting in default effects similar to those generated by direct manipulation in study 2. Furthermore, we saw that the effects of MM on default effects are empirically distinct from the effects of category expertise. Novices in study 3 with high levels of marketplace metacognition were able to discriminate between what a low default and what a high default might mean to them. Low-MM novices, however lacked the knowledge base to allow them to discriminate between low and high defaults, while expert subjects lacked the motivation to determine a marketer’s intent (presumably because these experts already knew what they want). This complex relationship supports the importance of MM rather than expertise alone as a key moderator of default effects. A practical extension of this work would be to other forms by which a default may be designated: i.e., via drop-down menus, via pre-configured bundles of attributes that might then be customized, or via order of presentation. Although our research spanned three diverse consumer categories (computers, electronic keyboards, and vacation packages), default effects in other categories may of course differ. We would expect, based on our theory, that product categories regarding which most consumers are highly confident and familiar to be relatively immune to information-based defaults. Our product categories involved fairly expensive purchases; product categories with extremely low levels of involvement might be less likely to generate backfire effects

37 driven by skepticism. Both these boundary conditions suggest that cognitive capacity and/or cognitive load may have a powerful effect on defaults. Moreover, marketplace metacognition seems not only content-specific but culturally specific: cultures that have different knowledge and expectations about the marketplace should respond differently to defaults. These would be fruitful grounds for future research. From a managerial perspective, our results suggest that some care should be taken in the selection of defaults. To the extent that defaults are also driven by attention-based mechanisms, manufacturers may continue to see defaults have a positive effect on choice as is typically the case for post-purchase or post-registration opt-out mailing lists (Johnson et al. 2002). However, firms that consistently propose the most expensive product as the default may lose their credibility and be subject to a “backfire” effect. AN OPTIMISTIC VIEW: FUTURE DIRECTIONS FOR THE STUDY OF METACOGNITION AND PRIOR KNOWLEDGE IN DECISION MAKING Defaults are pervasive in modern consumer life; they are not limited to the Internet but have merely been made more relevant by its arrival. To our minds, however, the primary significance of default effects is not that they reflect a new technology, but that they are carriers of meaning – they transmit information about the marketplace to the consumer. They are one of a broad array of marketer-generated techniques that may change in value to the consumer based on how he/she interprets them. Factors Affecting the Use of Marketplace Metacognition. Our studies use a textbased description of the marketer and the presence or absence of a default designation to provoke information-based effects. But marketplace metacognition could be primed in

38 many other ways, just as many other features of a shopping environment may invoke skepticism. Will a high number of alternatives suggest the marketer is indifferent among them and make consumer neglectful of the marketer’s default recommendations? Does the presentation of unordered categorical alternatives (rather than the ordinal alternatives presented in our studies) ever invoke skepticism? These and similar questions would be worth exploring in future research The Content of Marketplace Metacognition. Our “low>high” effect rests on one very simple assumption about the content of marketplace metacognition: a shared notion that marketers prefer to sell more expensive rather than less expensive products. This notion does not require complex market knowledge—for example it is not necessary for consumers to ‘know’ that expensive products are also high-margin products, although they may in fact believe this. It is only necessary for marketers to appear to act in a selfinterested way (according to whatever naïve theories the consumer might have), thus generating skepticism and greater access to counterarguments. Consumers with different theories about where marketer’s self-interests lie may well generate different effects than we propose here; in fact, study 3 offers a tempting hint of such behavior: High-MM experts were actually less likely to choose the low default than its control. Although this effect was unexpected, it is quite consistent with our theoretical explanation if we concede that experts (in contrast to novices) might believe that marketers like to pass off low-quality goods to the undiscriminating. The content of marketplace metacognition and its heterogeneity across different classes of consumers would be fertile area for future research.

39 The Social Benefit of Information-Based Effects. Information-based effects need not necessarily be negative. For example, if a consumer has specific beliefs about a particular category, invoking this prior knowledge could have a positive impact on the consumer’s reasoning process. If a computer firm is known as an expert systems integrator, or if an apparel firm is known as an arbiter of taste, firm-specific information effects are likely to be positive, particularly for expert consumers who are aware of the risks of mismatched computer hardware or the risks of wearing last year’s styles. In the face of an overwhelming flood of evidence that consumers’ preferences are perennially uncertain and must be constructed from the bits and pieces of information floating around the brain, it seems critically important to appreciate how the consumer herself or himself construes the situation the marketer has put him/her in. What is Firm X up to? Why did they make the decision to do it that way? How should I as a consumer respond to it? The default effects we have documented here are only one result of consumers’ constant search for informative cues about their own preferences. Our studies take a “dynamic” perspective on the study of consumer decision-making: one in which the outcome is mutually determined by the marketer’s design and the consumer’s interpretation of it. There has been a surge of recent interest in the research community in such dynamic perspectives (Briley, Morris, and Simonson 2000; Campbell and Kirmani 2000; Friestad and Wright 1994; Iyengar and Lepper 1999, among others). Optimistically this perspective no longer excludes the consumer’s viewpoint on marketing problems (Bazerman 2001; Loewenstein 2001) for the eminently practical reason that we cannot correct predict consumer behavior without it.

40 To our minds, information-based effects of marketplace metacognition are a positive sign of consumers’ ability to cope with persuasive attempts rather than a sign that they are subject to normatively inappropriate framing effects. Furthermore, our results suggest that consumers do eventually become less vulnerable to defaults: highMM consumers clearly discriminated between types of defaults even when their expertise in the category was low. Consumers’ knowledge of the marketplace may serve them well, after all.

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44 TABLE 1 STUDY 1: ATTRIBUTE LEVELS

Attribute Number of Musical Voices (Keyboard) Number of Musical Styles (Keyboard) Monitor Size (Computer) Hard Drive Capacity (Computer) Meals Included (Vacation Package) Transportation Included (Vacation Package)

Low 16 10 17” 10.0 GB None None

Middle 32 20 19” 13.6 GB Breakfast Car

High 64 40 21” 16.8 GB Breakfast and dinner Car and driver

45 TABLE 2 STUDY 1: CHOICE PROBABILITIESa

Default Percent Choosing: Low Option Middle Option High Option Control (no default) 30.43% 49.28% 20.29% Low 39.77% 41.67% 18.56% Middle 21.59% 58.71% 19.70% High 23.48% 50.76% 25.76%

a

The shaded cells suggest an effect of default designation on choice of the default option: subjects were most likely to choose a particular option when it was the default, compared to the control column to the left.

46 TABLE 3 STUDY 1: RESULTS (Conditional fixed-effects logistic regression) Model 1 Coef. Z (Std. Err.) .5600 7.769 *** (.0721) -.3172 -3.598 *** (.0881) .3731 4.968 *** (.0751) ---------1091.15 ----Model 2 Coef. Z (Std. Err.) .6328 6.589 *** (.0960) -.2120 -1.890 *** (.1122) ----.5752 (.1542) .3120 (.1498) .2122 (.1707) -1089.89
a

Independent Variable Middle Option High Option Default (any) Low Default Middle Default High Default Log likelihood

3.731 *** 2.083 ** .1243

* significant at p ≤ .05, ** significant at p ≤ .01, *** significant at p ≤ .001 We also tested this model against a model restricting the low and high default coefficients to be equal (LL = -1091.43).
a

47 TABLE 4 STUDY 2: CHOICE PROBABILITIESa

Default Condition Information Condition Limited Choice Low Option High Option Enhanced Low Option High Option Total Low Option High Option Control (No Default) 54.2% 45.8% 45.6% 54.4% 50.0% 50.0% Low Default 56.2% 43.8% 59.4% 40.6% 57.8% 42.2% High Default 37.8% 62.1% 52.1% 47.9% 45.0% 55.0% Total 49.5% 50.5% 52.5% 47.5% 51.0% 49.0%

a

To see the effects of default designation, compare the choice of an option when it is the default to its control in the left-hand column. For example, in the 2nd row illustrating the limited information condition, we can see that 62.1% of subjects in the high default condition chose the high option, whereas only 45.8% of subjects in the control condition did so.

48 TABLE 5 STUDY 2: RESULTS Model % Choosing High Option) Independent Variable Low Default High Default Information Low Default*Info High Default*Info Counterarguments Constant Wald χ2 (df)
Coef.
(Std. Err.)

Model 2 (% Counterarguing)
Coef.
(Std. Err.)

Model 3 (% Choosing High Option)
Coef.
(Std. Err.)

Z
---0.27 2.05 * 1.11 -.12 -2.22 * ---0.65 (5)

Z
-0.71 -2.36 * -1.91 * 1.83 * 2.74 *** --0.70 (5)

Z
---0.90 -0.06 -0.63 0.28 -0.07 12.81 *** -4.63 *** (6)

---.0842 (.3130) .6611 (.3227) .3453 (.3100) -.4735 (.3834) -.9227 (.4156) ---.1671 (.2566) 16.62

---.2630 (.3722) -.9076 (.3854) -.7273 (.3728) .8550 (.4681) 1.309 (.4770) --1.984 10.74

---.4661 (.5172) -.0337 (.5577) -.3388 (.5367) .1787 (.6441) -.0507 (.7256 4.069 (.3178) -2.1467 (.4632) 179.62

* Significant at p ≤ .05, ** significant at p ≤ .01, *** significant at p ≤ .001

49 TABLE 6 STUDY 3 – CHOICE PROBABILITIESa

Default Condition (Enhanced Information) Expertise Novice Marketplace Metacognition Low MM Choice Low Option High Option High MM Low Option High Option Total Novice Low Option High Option Expert Low MM Low Option High Option High MM Low Option High Option Total Expert Low Option High Option Total Low Option High Option Control (No Default) 60.0 40.0 37.5 62.5 49.0 51.0 36.2 63.8 39.9 61.1 37.5 62.5 42.9 57.1 Low Default 61.9 38.1 45.5 54.5 53.5 46.5 40.0 60.0 31.0 69.0 35.6 64.4 43.3 56.7 High Default 44.1 55.9 47.2 52.8 45.3 54.7 41.7 58.3 38.3 61.7 39.8 60.2 42.4 57.6 Total 54.3 45.7 43.0 57.0 49.1 50.9 39.2 60.8 36.0 64.0 37.6 62.4 42.9 57.1

a

To see the effects of default designation, compare the choice of an option when it is the default to its control in the left-hand column. For example, in the 1st row, we can see that 55.9% of low-MM novices in the high default condition chose the high option, whereas only 40.0% of low-MM novices in the control condition did so.

50 FIGURE 1 STUDY 1: SAMPLE STIMULUS High Default, Number of Voices

Number of Voices The number of types of sounds the keyboard can mimic; for example, you can make each note sound like a violin, marimba, human voice or choir, electric guitar, etc. Circle or fill in the box for the level of attribute you prefer. [If you do not circle one, the manufacturer will automatically provide the level indicated by a mark.]

16 voices 32 voices ● 64 voices

$40 different $50 different $90 different

51 FIGURE 2 STUDY 1: PERCENT CHOOSING DEFAULT VERSUS CONTROLa

10 8 6 4 2 0 -2 -4 -6 -8 -10
-7.6

9.4

9.4 5.3

1.5

-0.6 -2.1

Choosing Low Choosing Middle Choosing High

-8.8

-6.9

Low Default

Middle Default

High Default

a

i.e., the percentage of subjects in the low default condition choosing the low option was 9.4 higher than the percent choosing this option in the control (no-default) condition.

52 FIGURE 3 STUDY 2: PERCENT CHOOSING DEFAULT VERSUS CONTROLa

20
16.3

15 10 5
2.0

13.8

Low High Enhanced .
-6.5

0 Limited -5 -10

i.e., the percentage of subjects in the limited information condition choosing the high option was 16.3 higher than the percent choosing this option in the control (no-default) condition.

a

53 FIGURE 4 STUDY 3: PERCENT CHOOSING DEFAULT VERSUS CONTROLa

30 20 10
1.9 15.9 8.0 3.8 -9.7 0.6 -5.3 -8.9

0 -10 -20 -30 Low Default High Default
Novices/Low MM Novices/High MM Experts/Low MM

Experts/High MM

i.e., the percentage of low-MM novices in the high default condition choosing the high option was 15.9 higher than the percent of low-MM novices choosing this option in the control (no-default) condition.

a