Are you stuck?

Status Quo bias, as explained by Daniel Kahneman, Jack Knetsch, Amos Tversky and Richard H Thaler among others, is an emotional reaction and preference for the current state that biases against loss aversion or endowment effects.  Loss aversion is the propensity to avoid losses over gains even when comparing an equivalent value.  For instance, people would attribute a much higher value to losing a hundred dollars than gaining it.  One implication of loss aversion is that individuals have a strong tendency to remain at the status quo because the disadvantage of leaving the status quo loom larger than the advantages.

An endowment effect, in short, is when people demand much more to give up an item and they would be willing to pay to get it. As a realtor, I see this often in real estate.  People often attribute a higher value to their home when selling it than they would assign to it if they were buying.  Emotions of this endowment effect cloud what the market data supports.

IMG_5332Furthermore, the advantage of staying with the status quo increases with the number of alternatives. This is often called a paralysis of choice.  When faced with too many choices, Barry Schwartz, as described in his book Paralysis of Choice, found that psychological concerns of missed opportunities and perceived “happiness” could hinder choosing an option on its merits alone and resulted in no decision or status quo.

Why should you be concerned with status quo bias, loss aversion and paralysis of choice?  Because it blinds proper decision making that can improve your financial decisions and overall happiness.

Any comments you would care to share?

If you like my writing here, I welcome your comments and advice for future topics.

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Namaste

BTW.  My choice is the Cooper’s Hawk Sparkling Rose and then their Almond Champagne!

 

 

 

 

 

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