Are you somebody who is comfortable with change? Or do you prefer things to stay the way they are? The field of behavioural insights shows that people have a general tendency to prefer to stick with the current state of things, rather than change course. This is a behavioural bias known as status quo bias. This bias pushes people to stick with the status quo, even though there are instances where changing things up makes financial sense.
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What is status quo bias?
Status quo bias is our innate preference to stick with the current state of things, rather than do anything to change course. When faced with a decision, we typically choose to keep doing what we are currently doing – the status quo – rather than doing something different. This means that we frequently won’t make changes in our lives without a strong incentive or motivation to do so. Status quo bias helps us save time and energy, but sometimes it’s in our best interest to shake things up.
Status quo bias interacts with other behavioural biases, potentially making it tougher to override. For example, one of the reasons people stick with the status quo is that they are afraid that they will regret their decision to change their behaviour. This is a behavioural bias known as regret aversion.
What does status quo bias look like?
Status quo bias can affect the decisions of both individuals and groups of people. Here are a few examples:
- Restaurant orders – When visiting your favorite restaurant, you might find yourself choosing the same meal every time instead of trying something new. Status quo bias kicks in, and you stick with what you know to be a good meal instead of trying a different dish.
- Five day work week –The five day work week is a societal norm that we have come to accept. Many organizations stick with a five day work week despite emerging evidence to suggest that employees may be happier and more productive with a four day work week.
- Elections –In political elections, incumbents are more likely to win than challengers.When faced with the decision of who to support, status quo bias pushes voters to stick with the candidate they are already familiar with, rather than vote for someone new.
There are many examples of status quo bias on both an individual and societal level. Given that it is heavily intertwined with other behavioural biases, it can be very pervasive.
Our individual behaviours are prone to bias. That can make financial decisions challenging. Try our behavioural bias checker to understand how biases might be affecting your financial decision making.
How could status quo bias affect your financial decisions?
Status quo bias can impact your financial decisions in a few key areas:
- Switching financial products – Financial products such as credit cards and bank accounts are offered by a wide range of providers in Canada. In many cases, people will stick with a more expensive product even though there is a cheaper alternative. They would rather spend more money than choose to do something different.
- Starting to save – The decision to start saving money for the future is one of the most important financial decisions you can make. That said, people struggle to take the first step in saving because it means doing something different. Opening a savings account and depositing money every month would mean breaking the status quo – a tough task for many.
- Investing decisions – Many investors can be resistant to changes to their investment portfolio because of status quo bias. While buying or selling a specific asset may be the best decision for an investor, they can often resist and choose to stick with the status quo by doing nothing.
These are just a few examples of how status quo bias can impact your financial situation. It can be easy and simple to keep on doing what you are doing, but that doesn’t necessarily mean it is the best decision for you.
Being aware of your personal level of risk tolerance can be one way to ensure you are making investing decisions that make sense for you. Learn more about risk tolerance and investing.
How can you protect yourself from status quo bias?
Here are a few tactics you can use to limit the effects of status quo bias on your financial decisions.
- Consider the opposite – Instead of focusing on the benefits of sticking with what you know, get yourself to highlight the benefits of changing your behaviour. You can also re-frame the status quo as missing out on the potential advantages of changing course – activating loss aversion.
- Consult an expert –Experts such as registered financial advisors are a trusted and valuable resource for counteracting status quo bias. They can help you consider alternatives in a situation, and give you the confidence to break the status quo.
- Rely on objective data –We often stick with the status quo because it is easy, familiar, and we fear that we will regret any decision to change course. Objective data can help overcome these factors by giving you evidence to motivate a behaviour change.
Breaking the status quo is no easy task. It involves managing a number of different factors and biases that feed into status quo bias. These are some useful tactics you can use to help you change your behaviour for the better.
Learn more about other behavioural biases which might be impacting your financial decisions in ways you may not realize.
Summary
Status quo bias is one of many behavioural biases that impacts your financial decisions. Here’s how it works:
- Status quo bias is the general preference of people to stick with the current state of things, rather than do anything to change course.
- It is one of the most difficult biases to manage because it is intertwined with other behavioural biases, such as loss aversion, regret aversion, and information overload.
- This bias is evident in both individual and societal decisions, and can affect your saving and investing decisions as well as your preferences for financial products.
- You can manage the negative effects of status quo bias by considering the opposite decision, consulting an expert, and relying on objective data.
