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Status Quo Bias, Multiple Priors and Uncertainty Aversion

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  • Ortoleva, Pietro

Abstract

Motivated 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.

Suggested Citation

  • Ortoleva, Pietro, 2008. "Status Quo Bias, Multiple Priors and Uncertainty Aversion," MPRA Paper 12243, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:12243
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    References listed on IDEAS

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    Cited by:

    1. Stoye, Jörg, 2011. "Axioms for minimax regret choice correspondences," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2226-2251.
    2. Georgios, Gerasimou, 2013. "A Behavioural Model of Choice in the Presence of Decision Conflict," SIRE Discussion Papers 2013-25, Scottish Institute for Research in Economics (SIRE).
    3. repec:eee:jetheo:v:169:y:2017:i:c:p:93-127 is not listed on IDEAS
    4. Mandler, Michael, 2014. "Indecisiveness in behavioral welfare economics," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 219-235.
    5. Elena Cettolin & Arno Riedl, 2015. "Revealed Incomplete Preferences under Uncertainty," CESifo Working Paper Series 5359, CESifo Group Munich.
    6. Maltz, Amnon, "undated". "Rational Choice with Category Bias," Working Papers WP2015/4, University of Haifa, Department of Economics, revised 18 Nov 2015.
    7. Daniele Pennesi, 2013. "Endogenous Status Quo," Carlo Alberto Notebooks 314, Collegio Carlo Alberto.
    8. Roee Teper, 2010. "Probabilistic Dominance and Status Quo Bias," Working Paper 5864, Department of Economics, University of Pittsburgh.
    9. Maltz, Amnon, 2016. "Experience based dynamic choice: A revealed preference approach," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 1-13.
    10. Riella, Gil & Teper, Roee, 2014. "Probabilistic dominance and status quo bias," Games and Economic Behavior, Elsevier, vol. 87(C), pages 288-304.
    11. Laura Lucia-Palacios & Raúl Pérez-López & Yolanda Polo-Redondo, 2016. "Enemies of cloud services usage: inertia and switching costs," Service Business, Springer;Pan-Pacific Business Association, vol. 10(2), pages 447-467, June.
    12. Buturak, Gökhan & Evren, Özgür, 2017. "Choice overload and asymmetric regret," Theoretical Economics, Econometric Society, vol. 12(3), September.
    13. Mihm, Maximilian, 2016. "Reference dependent ambiguity," Journal of Economic Theory, Elsevier, vol. 163(C), pages 495-524.
    14. Christoph Engel & Svenja Hippel, 2017. "Experimental Social Planners: Good Natured, but Overly Optimistic," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2017_23, Max Planck Institute for Research on Collective Goods.
    15. Gerasimou, Georgios, 2012. "Asymmetric Dominance, Deferral and Status Quo Bias in a Theory of Choice with Incomplete Preferences," MPRA Paper 40097, University Library of Munich, Germany.
    16. Ghossoub, Mario, 2011. "Towards a Purely Behavioral Definition of Loss Aversion," MPRA Paper 37628, University Library of Munich, Germany, revised 23 Mar 2012.
    17. Mark Dean & Ozgur Kibris & Yusufcan Masatlioglu, 2014. "Limited Attention and Status Quo Bias," Working Papers 2014-11, Brown University, Department of Economics.
    18. Efe A. Ok & Pietro Ortoleva & Gil Riella, 2015. "Revealed (P)Reference Theory," American Economic Review, American Economic Association, vol. 105(1), pages 299-321, January.

    More about this item

    Keywords

    Status quo bias; Ambiguity Aversion; Endowment Effect; Risk Premium;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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