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Status Quo Bias

Updated on June 3, 2024
Article byPrakhar Gajendrakar
Edited byAaron Crowe
Reviewed byDheeraj Vaidya, CFA, FRM

Status Quo Bias Definition

Status quo bias refers to the general tendency of people to avoid or resist change and maintain the existing state. It is an example of cognitive bias where people like to maintain the current state of affairs.

This error in thinking is not uncommon and affects human decision-making skills. Its awareness is important in various aspects of life, and less biased decisions are important in various fields like economics, political science, business, psychology, and sociology. For example, not remaining competitive makes companies lack competitive advantages.

Key Takeaways

  • Status quo bias in decision-making refers to a type of cognitive bias which triggers people to restrict changes and maintain the existing state of affairs. It motivates people to continue on their current path.
  • The term was popularised by William Samuelson and Richard Zeckhauser in 1988.
  • Avoiding the chance to take initiatives to keep pace with the emerging trends in the industry is an example.
  • Methods to overcome it involve accepting its existence, understanding the root cause of the bias to construct appropriate solutions for the problem, utilizing critical thinking, and seeking external help.

Status Quo Bias Explained

The researchers William Samuelson and Richard Zeckhauser popularized the term in 1988 based on the observations from a series of controlled decision-making experiments for identifying the presence of status quo effects and published an article “Status Quo Bias in Decision Making.” The experiment disclosed the effect’s predictable and significant impact on decision-making. It is also identified that the degree of the effect varied with the strength and nature of individual preference and the number of alternatives present.

Different reasons can explain this bias. The most common reason is loss aversion. People are usually inclined to avoid losses; they don’t want to risk a loss even if the opportunity contains the potential for an attractive gain. Furthermore, people live inside a system of routines and patterns. So it is difficult for them to experiment or experience a different thing deviating from their current path or habits. Not taking action to keep momentum with the emerging trends, obstructing innovations, and always ordering the same food from a specific restaurant are signs of this bias in day-to-day lives.

The other prominent reason is cognitive dissonance. It defines the discomfort a person feels when introduced to something new and all together forming conflicting information. So while making decisions, people always tend to choose options that they are familiar with to remove tension and maintain cognitive consistency.

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Examples

  • Patrick has been investing in the stock market for a while, and he has built a reasonable portfolio and is investing every month. Suddenly to renovate his house, Patrick needs some funds. He has two options; he can sell some of his profitable stocks or utilize a home improvement loan. He opts for the second option, takes the loan, and renovates the house. It is a classic status quo bias example. In this case, Patrick does not want to alter the status quo of his portfolio and is ready to accept the cost of the loan. It is common among investors that if they have many options, they will most likely choose the one that will not disturb their existing state of affairs.
  • The behavior of investors influenced by this bias can result in bad investment decisions, for example, not exiting from the stocks that are harmful to their portfolio. Expecting a future uptrend or trend reversal, an investor can refrain from selling specific stock even if the stock exhibits a strong downtrend; the emotional bias encourages them to hold the stock in the hope that it will bounce back. Instead of employing active investment strategies, investors do nothing, specifically amateur investors, and incur losses.

How to Overcome?

How to Overcome Status Quo Bias
  • Accept its existence: The first way to overcome is to accept it; whenever stuck in a situation, people should have a habit of ensuring that they are tracking and recognizing their behavior and decisions to see if they choose the option out of bias and change it if needed.
  • Understand reasons or causes: Understanding the root cause of the bias will help construct appropriate solutions for the problem. For example, awareness about loss aversion will help change the focus from the existing options minimizing possible losses to high-risk opportunities.
  • Utilize critical thinking: Critical thinking using objective data helps overcome the bias which restricts changes.
  • Seek external help: People can seek external help whenever a decision is to be made, but the presence of alternatives and uncertainties makes it complex. Also, the decision can be related to personal life or businesses; an expert opinion gives a wider perspective and produces rational thinking.

Frequently Asked Questions (FAQs)

What is status quo bias meaning?

It refers to a type of cognitive bias which forces an individual to resist change because they prefer things to stay the same. People with this bias will try to maintain the status quo or the existing state of affairs at specific moments. Reducing the trigger for innovation and acceleration is one of its negative impacts.

What causes status quo bias?

It is the general tendency of people to make repeated choices and keep things in order. People avoid change, usually fearing a loss or reluctance to invite a different situation that they would not be able to comprehend or face. A simple example would be trying the same food every time and not trying anything new when visiting a specific restaurant.

What is an example of the status quo?

A simple example would be a person rejecting a job offer with a good package from a company in a different state to avoid relocating to a new place, and he wants to maintain the way things are.

This has been a Guide to What is Status Quo Bias and its Definition. We explain its meaning, how to overcome it, examples, & its influence on decision making. You can learn more from the following articles–

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