One of the most dangerous, and common, biases in our decision making is status quo bias, popularized by Nobel Prize winning economist Richard Thaler. This bias in decision-making, also commonly called inertia, prompts people to prefer for things to stay the same by doing nothing or by sticking to a previous decision. This bias becomes a problem when the expected value of a change, one that may only have small transition costs, is higher than the reward for sticking with the status quo. It is also a considerable problem with big decisions, where the benefits of change could be quite substantial.
Why is there a Status Quo Bias
People do not intentionally make sub optimal decisions, so that leaves the question of why Status Quo Bias is so prevalent. First is the concept of loss aversion, people place a higher value on avoiding loss than acquiring gain. Many people would rather not lose $5 than win $10 and would not take such a bet with a 50 percent chance of either outcome, even though over time you would be much better off taking the bet. Status Quo Bias is tied to loss aversion because by diverging from the status quo, you often run the risk of losing something you currently have (even if the expected outcome is better).
Second is the concept of sunk cost. A sunk cost is a cost that has already been incurred and thus cannot be recovered. It should not enter into your decision making process because this cost will be the same regardless of outcome. You should only look at new costs you would incur versus the expected benefit, thus the ROI on the new, not total, costs. Sunk cost is intertwined with status quo bias because changing direction can negate previous investments, even if the expected outcome is better than sticking with the past decisions.
Third is the concept of commitments. Diverging from the status quo could force people to withdraw from previously made commitments. Individuals are likely to keep commitments to avoid reputation damage or cognitive dissonance. In the latter case, breaking with committed strategy would be subconsciously inconsistent with the initial commitment to the strategy or product and the reasoning that drove the commitment.
Let’s not forget politics
One other area that drives the status quo bias, particularly in a corporate setting, is politics. People are reluctant to pursue a strategy or product that breaks from existing dogma because they fear if a change they support fails it will be blamed on them while benefits from a successful shift will not be directly attributed. They are thus making a rational, albeit sub-optimal, decision not to support changes to the status quo.
When does it happen
There are many situations where Status Quo Bias leads to sub-optimal decision making. One area is product changes, particularly to a successful product, as the product managers or designers are reluctant to change something that is working even if the new option would be better. A car manufacturer may be reluctant to change the styling on a popular model even if overall tastes are changing. By not making the change, in the long run they will lose market share. A game designer may not want to change the user experience for fear of alienating current players but a new design could make the product much more appealing to new players and also generate more revenue long-term from existing customers.
Another area where Status Quo Bias has a destructive effect is on business models. In the video game industry, many successful game companies rejected the free-to-play model because they made millions, or even billions, of dollars based on their existing business model even though free-to-play was gaining share at a rapid rate. Now companies like THQ no longer exist because of Status Quo Bias.
New products are another area where Status Quo Bias leads to sub-optimal decisions. Companies may not introduce a new product because they fear it will negatively impact their existing products, even though the net impact would be positive. Conversely, a company that has invested significantly in a new product may continue to invest in it even if testing shows it will be a failure because they do not want to change the decision to pursue that product strategy.
How to avoid status quo bias
Admitting you have a problem is the first step in eliminating any bias, including Status Quo Bias. Recognizing there is a bias favoring inertia allows you to look at decisions more objectively. You should then focus on choosing the path that leads to the highest expected value, whether or not it represents a change.
Key takeaways
- Status Quo Bias is when you make decisions to avoid change even when the change would have a positive expected value.
- People often prefer the status quo because of an aversion to losses (they overvalue losing something they already have to making a gain), sunk costs and previous commitments, while internal office politics also have a strong impact on sub-optimal decisions.
- When making decisions, you should look objectively at optimizing expected value, whether that value comes from something new or old.
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