Choosing to search: choice with a default option

Abstract In the presence of a default option, the optimal search rule for an agent with a reference-dependent utility and a search cost predicts: (i) the default increases the reservation utility due to the reference effect , leading to a better choice, and (ii) those with higher reservation utility will self-select into search and are more likely to find a superior option. Our experiments document the presence of both effects. Those who reject the default are likely to find higher-ranked options in their active search, supporting the self-selection effect. Even when the self-selection channel is shut down, the reference effect remains.