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Status quo bias in flexible spending account usage

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  • Cardon, James H.

Abstract

I apply prospect theory to explain patterns of flexible spending account (FSA) utilization that suggest the presence of status quo bias. Using prospect theory as an alternative to expected utility maximization, I show that loss aversion with an endogenous, interior reference level provides a plausible explanation for low participation rates and state dependence. Using 17 years of data from a private benefits firm, I find that FSA participation rates have increased but remain surprisingly low. I estimate models of FSA participation and find significant evidence of state dependence, meaning that past FSA participation is an important determinant of future participation.

Suggested Citation

  • Cardon, James H., 2019. "Status quo bias in flexible spending account usage," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 81(C), pages 47-55.
    • Handle: RePEc:eee:soceco:v:81:y:2019:i:c:p:47-55
    DOI: 10.1016/j.socec.2019.05.007
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