Probabilistic dominance and status quo bias (original) (raw)

Status quo bias in decision making

1988

economics, rationality Most real decisions, unlike those of economics texts, have a status quo alternative-that is, doing noth-ing or maintaining one’s current or previous decision. A series of decision-making experiments shows that individuals disproportionately stick with the status quo. Data on the selections of health plans and retirement programs by faculty members reveal that the status quo bias is substantial in important real decisions. Economics, psychology, and decision theory provide possible explanations for this bias. Ap-plications are discussed ranging from marketing techniques, to industrial organization, to the advance of science. “To do nothing is within the power of all men.”

Status quo bias, multiple priors and uncertainty aversion

2010

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.

Exceeding Expectations: Stochastic Dominance as a General Decision Theory

The principle that rational agents should maximize expected utility or choiceworthiness is intuitively plausible in many ordinary cases of decision-making under uncertainty. But it is less plausible in cases of extreme, low-probability risk (like Pascal's Mugging), and intolerably paradoxical in cases like the St. Petersburg and Pasadena games. In this paper I show that, under certain conditions, stochastic dominance reasoning can capture most of the plausible implications of expectational reasoning while avoiding most of its pitfalls. Specifically, given sufficient background uncertainty about the choiceworthiness of one's options, many expectation-maximizing gambles that do not stochastically dominate their alternatives "in a vacuum" become stochastically dominant in virtue of that background uncertainty. But, even under these conditions, stochastic dominance will generally not require agents to accept extreme gambles like Pascal's Mugging or the St. Petersburg game. The sort of background uncertainty on which these results depend looks unavoidable for any agent who measures the choiceworthiness of her options in part by the total amount of value in the resulting world. At least for such agents, then, stochastic dominance offers a plausible general principle of choice under uncertainty that can explain more of the apparent rational constraints on such choices than has previously been recognized.

Preference Uncertainty: A Theory and Experimental Evidence

2003

Abstract I outline a theory of choice in situations in which the decisionmaker is uncertain about his preferences. One prediction of this theory is that his willingness to pay for a good is always lower than his valuation. The outcome of an experiment, a repeated sealed-bid second price auction, supports this finding.

Status quo bias and social choice rules, evidence from a laboratory experiment

There are many procedures that turn individual preferences into collective decision. Generically they are known as social choice rules. Simple majority rule is one of the best known, and is often used when individuals face political, economic or social decisions. Other social choice rules, which are not used in mass political election, but prove to be efficient in other contexts (especially in the corporate sector), are approval voting and Borda count. Beside this, they are considered to be more easily adapted to the modern context of choice and better responding to behaviours like strategic voting. On the other hand, status quo bias is a common effect from heuristics and biases approach (a theoretical subfield of behavioural economics) affecting human behaviour, sometimes with disturbing results. In this paper we test the effect of status quo bias on the three social choice rules mentioned above through a laboratory experimental design. The main conclusion is that simple majority rule is significantly affected by status quo bias, while approval voting and Borda count are not. A direct implication of this conclusion is that individuals seem to prefer simple majority because it represents the default of elections.