Status Quo Bias

What is the Status Quo Bias?

The status quo bias describes our preference for the current state of affairs; resulting in resistance to change.

Where this bias occurs

Sam is a college student, gearing up to start a new semester. Before classes start, they have to pay their tuition. Their school offers medical and dental insurance, into which students are automatically enrolled. The cost of the insurance is, by default, included in the total sum of Sam’s school fees. There is, of course, the option to opt out of the health insurance, in which case, Sam’s school fees would decrease. Sam isn’t really sure whether or not they need health insurance – they might be covered by one of their parent’s plans – but they don’t really give it much thought and go ahead and pay their tuition.

This is an example of status quo bias because the students at Sam’s school are more likely to leave things as they are than they are to make the decision to opt out of the health insurance plan. If things were reversed, and the default was for health insurance to not be included, there would be far fewer students covered by the school’s healthcare plan. This is due to status quo bias, because we are more inclined to leave things as they are than we are to go out of our way to make a change.

Individual effects

Engaging in status quo bias is a sign that you’re not taking an effortful approach to decision-making. While this works to free up mental resources for other tasks, it means that we don’t necessarily make decisions based on sound reasoning. This can lead us to make choices that aren’t in our best interest. In this case, always sticking with the default option can cause us to miss out on opportunities that would be beneficial to us. For example, if the default is to include health insurance in Sam’s school fees and they don’t opt out of it, only to find out that their mother has an excellent healthcare plan that they’re covered by, they’re out a few hundred dollars that they could have otherwise saved.

This may make it seem like status quo bias is contradictory to action bias, a cognitive bias that describes our tendency to prefer action to inaction, even when the latter is the more advantageous response. While it’s true that in some cases, such as Sam’s, the default option is one of inaction, in many situations, the default option is an active response. As such, action bias may actually result from status quo bias. For example, soccer goalies jump to the left or right on the majority of penalty kicks, when they are actually more likely to make a save by simply standing still. Yet, as a goalie, the default option is to take action. Thus, our view of action as the norm, or default, can lead to action bias. Action bias can result in negative outcomes of its own, such as a soccer goalie failing to make a save.

Systemic effects

People’s preference for the default option over its alternatives can have significant consequences. For example, people must register to become organ donors. The default status is often to not be a donor. This means that there are likely fewer people registered as organ donors than there would be if it were the default. Consequently, fewer lives are being saved.

Why it happens

Social psychology has offered up several explanations as to why status quo bias occurs. It is consistent with the concepts of loss aversion and regret avoidance, both of which have been shown to influence decision-making. Furthermore, status quo bias has been maintained because it facilitates decision-making, especially when we are uncertain of what to do or feel overwhelmed by the number of options we are presented with.

Loss aversion and regret avoidance

Loss aversion is a concept in behavioral economics that refers to how the psychological pain we experience upon a loss is greater than the pleasure we experience from a gain of the same magnitude. This can impair our decision-making capabilities by preventing us from selecting the most advantageous option out of fear of failure.

When making a decision where we must choose between the default option and its alternatives, we treat the status quo as a reference point, or baseline. The status quo is familiar; we know what to expect from it. To choose the alternative, on the other hand, would be to take a risk. That’s where loss aversion comes into play. When considering the alternative option, we assign greater weight to the potential losses it could result in than we do to its potential gains. As such, we are biased in favor of the status quo, and inclined to stick with it over selecting the alternative.

Regret avoidance is a related concept, which posits that we tend to be more regretful of negative consequences resulting from an action than we are of similar consequences resulting from inaction. This contributes to status quo bias as it reinforces the notion that adhering to the status quo is the safe thing to do, as it is less likely to lead to strong feelings of regret.

Often, we consider deviating from the status quo to be a risk. We may be unwilling to make a risky decision because we are worried about the potential losses or negative outcomes. However, we do not give equal consideration to the possibility that choosing the alternative option might lead to far more favorable outcomes.

Decision-making can be overwhelming

Although status quo bias can cause us to make poor decisions, there is a reason why we continue to resort to it. When faced with a choice, it is not always obvious what the correct decision is. Status quo bias gives us something to fall back on at times when we feel overwhelmed.

Early research on status quo bias showed that the influence of this bias is positively correlated with the number of options in the choice set. Put simply, as the number of options we have to choose between increases, the more likely it becomes that we will engage in status quo bias. This has been linked to the concept of choice overload, which asserts that larger choice sets lead us to make worse decisions. In fact, some would argue that status quo bias does not qualify as decision-making at all; some researchers have classified this bias as a form of decision avoidance. When we give a large choice set to choose from and are uncertain of which option is best, choosing to default option may be a way for us to escape the stress of having to make a decision.

This is not a good strategy for rational decision-making however, it can be useful when making mundane decisions. For example, when having to choose between multiple different kinds of bread at the grocery story. It’s far easier to choose the same loaf you always get, rather than inspect every single option. Not only does this save you time, but it also frees up mental resources, allowing you to dedicate them to other, more important decisions. The time spent weighing your various options is referred to as deliberation costs. It has been given as a reason why, in some cases, status quo bias may not always be maladaptive.

Why it is important

It’s important that we are aware of status quo bias so that we are able to recognize when we are avoiding making a decision, and simply opting for the default option out of either laziness, or because we are feeling overwhelmed. Being aware of this bias can help us catch ourselves in the midst of using it, from which point we can go on to reevaluate our options and come to a more advantageous conclusion. This is of particular importance when the decision we are making carries significant weight, for example, choosing to opt into becoming an organ donor.

How to avoid it

Once you’re able to recognize that you’re engaging in status quo bias, you’re able to work towards avoiding in. Part of this is simply taking the time to weigh all of your options carefully, giving them each equal consideration. Doing so will prevent you from automatically opting for the default option.

Sometimes we engage in status quo bias because choosing the default is easier; opting for an alternative may require us to go slightly out of our way, even if it’s something as simple as signing the form to become an organ donor. In cases like these, it’s a good idea to make a plan of action. Write it on the calendar, schedule it into your planner, set a reminder on your phone, whatever works for you. When we’re motivated to do something, having a specific plan of action increases the chances of us actually getting around to it.

If you work in sales or marketing, part of your job is encouraging others to make a change. To prevent them from engaging in status quo bias, you should use framing to your advantage. This can be done by framing the default option as a loss. Remember, according to loss aversion, we assign greater weight to losses than to gains, so this is more effective than framing the alternative option as a gain.

How it all started

One of the first papers written about this bias was “Status Quo Bias in Decision Making” by W. Samuelson and R. Zeckhauser, which was published in 1988.10 In this paper they investigated how “status quo framing” – that is, making one option the default choice – affected decision-making. This was done by administering a questionnaire to participants, which asked them to make various hypothetical decisions.

In some cases, status quo framing was used such that one option was clearly the default, while the other was clearly a deviation from the status quo. Other participants were given ‘neutral’ options where no status quo was defined. A neutral hypothetical, for example, would state that you are a finance enthusiast who receives a large surprise cash inheritance from your grandfather. The question would ask for you to choose between several portfolios you could invest the money in, each carrying different levels of risk. The status quo bias would be exactly the same, except that a significant portion of your grandfather’s portfolio would already be invested in a moderate-risk company. After assessing several different scenarios, they found that the same investment option became significantly more attractive when it was framed as the status quo.

Example 1: The New Coke Fiasco

In the early 1980s, Coca-Cola was in trouble. After years of soda supremacy, Coca-Cola was rapidly losing market share to Pepsi and diet soft drinks. The aging baby boomers were turning to diet beverages to help them stay in shape, and the younger generation was gravitating towards Pepsi’s sweeter, smoother taste. To save the company, Coca-Cola executives needed to step into the future.

After formulating their new recipe, they conducted several blind taste tests, which were an overwhelming success. By a wide margin, New Coke’s sweeter taste was preferred to the classic concoction. In fact, New Coke was so good that a bottling company threatened to sue Coca-Cola if they didn’t put out the drink. Proud of their creation, Coca-Cola remodeled the bottle, paid for an expensive advertising campaign, and slapped the label “New!” on the top corner of every bottle.

Despite all of the metrics, industry experts, and executives singing its praises, the release of New Coke was a colossal failure. Shortly after the release, the company’s hotline received over 40,000 outraged calls, around 1100 more each day than before the change. Public protests, boycotts, and critics that ranged from David Letterman to Fidel Castro all lambasted the change.

How was this possible? According to Samuelson and Zeckhauser, status quo bias was at fault. By all metrics, New Coke was objectively better. However, the taste tests the marketing department made were blind, as consumers were not made aware of which coke they were drinking. In the real world, once the distinction of “New” was made, Coke drinkers opted towards the default Coke Classic. To this day, people refer to terrible ideas as the “worst thing since New Coke” showing the extent of the status quo bias in our culture.

Example 2: Missing out on Retirement

Ideally, retirement plans are smooth, safe investment vehicles. As you age, you slowly move from higher-risk assets to lower-risk assets, leaving you with a nice nest egg that takes advantage of the upside of stocks and the safety of bonds. Unfortunately, most retirement plans require us to shift these assets ourselves, which led to Samuelson and Zeckhauser’s 1988 discovery that over half of all TIAA-CREF plan participants were holding too many risky stocks in their portfolios right before retirement. This was because plan participants stuck with the default asset allocation they were given when they were young.3 Obviously, this risk level isn’t ideal, as a turn in the stock market could wipe out your hard-earned retirement savings.

Luckily, many mutual funds have caught on to the negative effects of the status quo bias. They now offer life-cycle funds, which automatically shift assets around based on the individual’s savings goal time horizon. Thus, investors are rewarded by doing nothing, as the default option automatically shifts funds towards the optimal assets for their age group.

Summary

What it is: The status quo bias refers to our preference to leave things the way they are over changing them. It can be summed up by the saying “If it ain’t broke, don’t fix it”.

Why it happens: Status quo bias stems from our tendencies to avoid losses and regret at all costs. As deviating from the status quo is a risk that could result in losses and regret, we stray towards inaction. Additionally, if we feel overwhelmed by the number or complexity of options available to us, opting towards the status quo helps us avoid the stress of making a decision.

Example 1: In 1985, Coca-Cola revamped its classic recipe to fit the sweeter taste of the time. Despite several blind taste tests indicating that consumers liked New Coke better, its release sparked public outrage and commercial failure. This outrage is mainly attributed to its branding distinguishing it as “New”, triggering the status quo bias.

Example 2: An effective retirement plan shifts assets from risky stocks to safe bonds as we age to protect our hard-earned retirement savings. Unfortunately, the status quo bias prevents us from actively doing shifting these assets, exposing us to higher risk than necessary near retirement. Luckily, behavioral science research has spawned the creation of lifecycle funds, which automatically shift assets optimally without the input of the participant.

How to avoid it:  On an individual level, recognizing the status quo bias when presented with choices is the first step to beating it. When you need to avoid the suboptimal default, making a plan of action can help us achieve success more effectively. On an organizational level, setting defaults optimally or framing the suboptimal default as a loss can influence behavior towards a desired outcome.

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