Status Quo Bias, Multiple Priors and Uncertainty Aversion
AbstractMotivated by the extensive evidence about the relevance of status quo bias both in experiments and in real markets, we study this phenomenon from a decision-theoretic prospective, focusing on the case of preferences under uncertainty. We develop an axiomatic framework that takes as a primitive the preferences of the agent for each possible status quo option, and provide a characterization according to which the agent prefers her status quo act if nothing better is feasible for a given set of possible priors. We then show that, in this framework, the very presence of a status quo induces the agent to be more uncertainty averse than she would be without a status quo option. Finally, we apply the model to a ﬁnancial choice problem and show that the presence of status quo bias as modeled here might induce the presence of a risk premium even with risk neutral agents.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12243.
Date of creation: Sep 2008
Date of revision:
Status quo bias; Ambiguity Aversion; Endowment Eﬀect; Risk Premium;
Other versions of this item:
- Ortoleva, Pietro, 2010. "Status quo bias, multiple priors and uncertainty aversion," Games and Economic Behavior, Elsevier, vol. 69(2), pages 411-424, July.
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-CBE-2009-01-03 (Cognitive & Behavioural Economics)
- NEP-UPT-2009-01-03 (Utility Models & Prospect Theory)
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