Knowing When to Quit: Default Choices, Demographics and Fraud

Abstract

We study defaults in a novel setting where the optimal choice is clear: the decision to escape from fraud. A government lawsuit created a natural experiment whereby some consumers enrolled in a fraudulent subscription programme were cancelled by default, while others had to cancel actively. We find that cancelling subscriptions by default increased cancellations to 99.8%, 63.4 percentage points more than requiring active cancellation. We also find that consumers residing in poorer, less‐educated Census blocks were more likely than average to cancel prior to the lawsuit but were less likely to actively cancel when notified they could do so.