The status quo bias

So many economic applications I teach involve incentives, means which motivate individuals to act in a certain way or to make a particular choice. Most often, in the classroom, this is in the context of economic incentives, such as a high tax on gasoline consumption providing me with an incentive to reduce my gasoline purchases each week. The potential to earn high profits provides a financial incentive for businesses to lower costs, increase efficiency, and innovate. Incentives drive much of our behavior, but incentives need not necessarily be economic.

Often, models of economic decision making assume individuals can act fully rationally at all times – but often, this is not the case when it comes to actual action. As decision makers, we frequently fail to act on what we know is in our economic best interest. Think of those incandescent light bulbs throughout your home you’ve been meaning to swap out for more energy efficient bulbs. You know they will save you money overall, and yet, you still haven’t done it. Why?

There are many psychological biases which impact our decision making as humans (“humans” to distinguish from “economic hyper-rational robots”), and one of these is a bias toward the status quo. It can be very difficult for us to do what we know is better for us, purely because it is easier to keep things the way they are. I know my life would be easier if I went through my closet and donated the clothes I know I’ll never wear – it would make others better off, and would make my getting dressed in the morning much easier. But, I don’t bother. Even though I know I should change the account linked to my paycheck’s direct deposit to avoid paying certain bank fees, I haven’t filled out that pesky paperwork at my employer’s payroll department.

Here’s an example from Sunstein and Thaler in Nudge:

Status quo bias is easily exploited. Many years ago American Express wrote Sunstein a cheerful letter telling him that he could receive, for free, three-month subscriptions to five magazines of his choice. Free subscriptions seem like a bargain, even if the magazines rarely get read, so Sunstein happily made his choices. What he didn’t realize was that unless he took some action to cancel his subscription, he would continue to receive the magazines, paying for them at the normal rate. For about a decade, he has continued to subscribe to magazines that he hardly ever reads. (He keeps intending to cancel those subscriptions, but somehow never gets around to it. We hope to get around to discussing procrastination in the next chapter.)

By better understanding incentives, both financial and psychological, we can help our own decision making. Instead of watching the show that follows my favorite show because I am too content with the status quo (or too lazy to grab the remote), I should consider if it is a show I really want to be watching. Being more aware of status quo bias can help each of us question if we are making decisions because we think the are the decisions to make, or because these decisions are the same ones we’ve always made.

*I’ve identified the status quo bias as an important theme. Over time, I’ll try to collect overarching themes using the category marked “themes”. This approach is not unlike Shane’s collection of mental models over at Farnam Street. My goal is to utilize themes to collect those ideas I think should be central to how we approach thought, philosophy, and decision making.

Additional examples:

  • Nudge (p. 203-4): [In reference to school choice] “When parents pick schools, status quo bias plays a big role. The neighborhood school that one knows, failing or not, may be preferable to the unknown school half an hour away.”
  • The Monty Hall Problem
  • Fooled by Randomness (p. 92), on financial traders with a tendency to get married to their positions: “There is a saying that bad traders divorce their spouse sooner than abandon their positions. Loyalty to ideas is not a good thing for traders, scientists – or anyone.”
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2 comments

  1. […] Nudge offer concrete ways to re-evaluate our approaches to decision making, like recognizing a status quo bias,¬†learning to neglect sunk costs, or respecting when our actions generate negative externalities. […]

  2. […] of us are particularly inclined to do … well … nothing. This effect, the status quo bias, has been well-documented. Since it takes effort to change behavior, it is often our default state […]

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