Issue 9 of The Psychology of Money Decisions
What is it about?
Status quo bias refers to our preference for the current state of events. This state is taken as a reference point, even when alternatives would be better for our financial well-being. In most situations, making no choice is making a choice (that is doing nothing or sticking with a previously made choice). When we continue to make a choice that doesn’t make sound financial sense, just because that’s the way we’ve always done it, we’re exhibiting status quo bias.
Give me an example!
This kind of bias seems to become stronger as the number of choices we have to make increases. For example, the more complicated the investment decision, the more likely we are to stick to the portfolio we already have. Status quo bias also takes over when a small friction point is put into place (for example, having to pay a one-time fee).
Our inclination to resort to the status quo can be exploited through a variety of soft-sell techniques. One common example is when we’re persuaded to buy an item by the promise of money back guarantee if we’re not satisfied with our purchase.
Even if it turns out that we’re not satisfied, we’re actually more likely to default to the status quo (as owners of the product, no longer “on the market” for an alternative) than we are to take the item back and ask for a refund.
Another example of sellers betting on this bias is when service providers charge customers a transaction fee for switching to an upgraded package (for example, adding more data to your plan). They’re doing this to nudge customers to start with a more expensive package, which will then become the status quo.
In most situations, we have a strong preference for the current state of affairs.