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

Decision makers have a strong tendency to retain the status quo unless an alternative which may be a significant improvement comes along. This well-documented phenomenon is termed status quo bias. In many complicated choice problems governed by a status quo, decision makers consider alternatives that yield inferior outcomes in some criteria if they simultaneously yield improvements in a set of other criteria that is of relative importance. In an uncertain environment, we present the probabilistic dominance approach to status quo bias-an alternative is considered acceptable to replace the status quo only if it yields a better outcome than the status quo with sufficiently high probability. Probabilistic dominance is applied and behaviorally characterized in a choice model that allows for a scope of biases towards the status quo, general enough to accommodate unanimity but also standard expected utility maximization. In addition, we show that the probabilistic dominance choice model predicts the well-known endowment effect and provide with the means of calculating the buying and selling prices.