Can you break free from your comfort zone and overcome Status Quo Bias?
Understanding why the seemingly irrational decisions we make help us remain in suboptimal situations
In an ideal world, our decisions would be the result of a careful weighing of costs and benefits and informed by existing preferences. We would always make optimal decisions, unaffected by defaults,* price framing,† and price anchors.‡ The work of behavioural economics—a field pretty much created by Daniel Kahneman—intends to step outside of the ideal world and instead studies the effects of psychological, cognitive, emotional, cultural, and social factors on the decisions of individuals and institutions and how those decisions vary from those implied by classical economic theory. But in reality, we all suffer from several biases. Chief among them is the status quo bias, which locks us into a prison of indecision.
The status quo bias says that we prefer things to stay as they are, or for the current state of affairs to remain the same. For example, we tend to stick with established brands even though blind tests have shown that preferences for strong brands like Coca-Cola are much lower when people are choosing based on taste alone. Another example of the status quo bias is when we fail to take advantage of investment and savings opportunities. Rather than place our money in investments that have a degree of risk, we often leave our money in low-yield savings accounts. The status quo bias leads us to maintain our financial situation as it currently is, rather than taking a moderate risk to improve our financial outlook.
"The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking." — Albert Einstein
Among the various biases, the most influential is the status quo bias, rooted in a fear of change. This bias leads us to make seemingly irrational decisions to remain in suboptimal situations.
Therefore, recognise and challenge the comfort of the status quo, objectively evaluate alternatives, and take small steps toward change.
With gratitude,
Arunjay.
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* Defaults refer to the preset choices or options that individuals encounter when making decisions. These defaults often have a significant influence on people’s decisions and behaviour, even though they might not actively think about or analyse the choices presented to them.† Price framing is a psychological concept in behavioural economics that involves presenting prices or numerical values in a way that influences people’s perceptions and decisions. The way prices are framed can significantly impact how individuals perceive the value of a product or service and whether they are more likely to make a purchase.‡ Price anchors is a concept often used in marketing and sales, derived from behavioural economics. It involves strategically introducing a reference point, or “anchor,” to influence how people perceive and evaluate subsequent prices. The anchor serves as a point of comparison that can bias individuals’ judgments and decisions, leading them to perceive prices as either more or less favourable based on the initial anchor.