Status Quo Bias in Decision Making

Most real decisions, unlike those of economics texts, have a status quo alternative-that is, doing nothing or maintaining one’s current or previous decision. A series of decision-making experiments shows that individuals disproportionately stick with the status quo. Data on the selections of health plans and retirement programs by faculty members reveal that the status quo bias is substantial in important real decisions. Economics, psychology, and decision theory provide possible explanations for this bias. Applications are discussed ranging from marketing techniques, to industrial organization, to the advance of science. “To do nothing is within the power of all men.” Samuel Johnson How do individuals make decisions? This question is of crucial interest to researchers in economics, political science, psychology, sociology, history, and law. Current economic thinking embraces the concept of rational choice as a prescriptive and descriptive paradigm. That is, economists believe that economic agents-individuals, managers, government regulators-should (and in large part do) choose among alternatives in accordance with well-defined preferences. In the canonical model of decision making under certainty, individuals select one of a known set of alternative choices with certain outcomes. They are endowed with preferences satisfying the basic choice axioms-that is, they have a transitive ranking of these alternatives. Rational choice simply means that they select their most preferred alternative in this ranking. If we know the decision maker’s ranking, we can predict his or her choice infallibly. For instance, an individual’s choice should not be affected by removing or adding an irrelevant (i.e., not top-ranked) alternative. Conversely, when we observe his or her actual choice, we know it was his or her top-ranked alternative. 8 WILLIAM SAMUELSON AND RICHARD ZECKHAUSER The theory of rational decision making under uncertainty, first formalized by Savage (19.54) requires the individual to assign probabilities to the possible outcomes and to calibrate utilities to value these outcomes. The decision maker selects the alternative that offers the highest expected utility. A critical feature of this approach is that transitivity is preserved for the more general category, decision making under uncertainty. Most of the decisions discussed here involve what Frank Knight referred to as risk (probabilities of the outcomes are well defined) or uncertainty (only subjective probabilities can be assigned to outcomes). In a number of instances, the decision maker’s preferences are uncertain. A fundamental property of the rational choice model, under certainty or uncertainty, is that only preference-relevant features of the alternatives influence the individual’s decision. Thus, neither the order in which the alternatives are presented nor any labels they carry should affect the individual’s choice. Of course, in realworld decision problems the alternatives often come with influential labels. Indeed, one alternative inevitably carries the label status quo-that is, doing nothing or maintaining one’s current or previous decision is almost always a possibility. Faced with new options, decision makers often stick with the status quo altemative, for example, to follow customary company policy, to elect an incumbent to still another term in office, to purchase the same product brands, or to stay in the same job. Thus, with respect to the canonical model, a key question is whether the framing of an alternative-whether it is in the status quo position or not-will significantly affect the likelihood of its being chosen.’ This article reports the results of a series of decision-making experiments designed to test for status quo effects. The main finding is that decision makers exhibit a significant status quo bias. Subjects in our experiments adhered to status quo choices more frequently than would be predicted by the canonical model. The vehicle for the experiments was a questionnaire consisting of a series of decision problems, each requiring a choice from among a fixed number of alternatives. While controlling for preferences and holding constant the set of choice alternatives, the experimental design varied the framing of the alternatives. Under neutralframing, a menu of potential alternatives with no specific labels attached was presented; all options were on an equal footing, as in the usual depiction of the canonical model. Under status quo framing, one of the choice alternatives was placed in the status quo position and the others became alternatives to the status quo. In some of the experiments, the status quo condition was manipulated by the experimenters. In the remainder, which involved sequential decisions, the subject’s initial choice self-selected the status quo option for a subsequent choice. In both parts of the experiment, status quo framing was found to have predictable and significant effects on subjects’ decision making. Individuals exhibited a significant status quo bias across a range of decisions. The degree of bias varied with the strength of the individual’s discernible preference and with the number of alternatives in the choice set. The stronger was an individual’s preference for a selected alternative, the weaker was the bias. The more options that were included in the choice set, the stronger was the relative bias for the status quo. STATUS QUO BIAS IN DECISION MAKING 9 To illustrate our findings, consider an election contest between two candidates who would be expected to divide the vote evenly if neither were an incumbent (the neutral setting). (This example should be regarded as a metaphor; we do not claim that our experimental results actually explain election outcomes.‘) Now suppose that one of these candidates is the incumbent office holder, a status generally acknowledged as a significant advantage in an election. An extrapolation of our experimental results indicates that the incumbent office holder (the status quo alternative) would claim an election victory by a margin of 59% to 41%. Conversely, a candidate who would command as few as 39% of the voters in the neutral setting could still earn a narrow election victory as an incumbent. With multiple candidates in a plurality election, the status quo advantage is more dramatic. Consider a race among four candidates, each of whom would win 25% of the vote in the neutral setting. Here, the incumbent earns 38.5% of the vote, and each challenger 20.5%. In turn, an incumbent candidate who would earn as little as 9% of the vote in a neutral election can still earn a 25.4% plurality. The finding that individuals exhibit significant status quo bias in relatively simple hypothetical decision tasks challenges the presumption (held implicitly by many economists) that the rational choice model provides a valid descriptive model for all economic behavior. (In Section 3, we explore possible explanations for status quo bias that are consistent with rational behavior.) In particular, this finding challenges perfect optimizing models that claim (at least) allegorical significance in explaining actual behavior in a complicated imperfect world. Even in simple experimental settings, perfect models are violated. In themselves, the experiments do not address the larger question of the importance of status quo bias in actual private and public decision making. Those who are skeptical of economic experiments purporting to demonstrate deviations from rationality contend that actual economic agents, with real resources at stake, will make it their business to act rationally. For several reasons, however, we believe that the skeptic’s argument applies only weakly to the status quo findings. First, the status quo bias is not a mistake-like a calculation error or an error in maximizing-that once pointed out is easily recognized and corrected. This bias is considerably more subtle. In the debriefing discussions following the experiments, subjects expressed surprise at the existence of the bias. Most were readily persuaded of the aggregate pattern of behavior (and the reasons for it), but seemed unaware (and slightly skeptical) that they personaly would fall prey to this bias. Furthermore, even if the bias is recognized, there appear to be no obvious ways to avoid it beyond calling on the decision maker to weigh all options evenhandedly. Second, we would argue that the controlled experiments’ hypothetical decision tasks provide fewer reasons for the expression of status quo bias than do realworld decisions. Many, if not most, subjects did not consciously perceive the differences in framing across decision problems in the experiment. When they did recognize the framing, they stated that it should not make much of a difference. By contrast, one would expect the status quo characteristic to have a much greater impact on actual decision making. Despite a desire to weigh all options evenhand10 WILLIAM SAMUELSON AND RICHARD ZECKHAUSER edly, a decision maker in the real world may have a considerable commitment to, or psychological investment in, the status quo option. The individual may retain the status quo out of convenience, habit or inertia, policy (company or government) or custom, because of fear or innate conservatism, or through simple rationalization. His or her past choice may have become known to others and, unlike the subject in a compressed-time laboratory setting, he or she may have lived with the status quo choice for some time. Moreover, many real-world decisions are made by a person acting as part of an organization or group, which may exert additional pressures for status quo choices. Finally, in our experiments, an alternative to the status quo was always explicitly identified. In day-to-day decision making, by contrast, a decision maker may not even recognize the potential for a choice. When, as is often the case in the real world, the first decision is to recognize that th