Status quo bias in flexible spending account usage

James Cardon

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2019, vol. 81, issue C, 47-55

Abstract: I apply prospect theory to explain patterns of flexible spending account (FSA) utilization that suggest the presence of status quo bias. Using prospect theory as an alternative to expected utility maximization, I show that loss aversion with an endogenous, interior reference level provides a plausible explanation for low participation rates and state dependence. Using 17 years of data from a private benefits firm, I find that FSA participation rates have increased but remain surprisingly low. I estimate models of FSA participation and find significant evidence of state dependence, meaning that past FSA participation is an important determinant of future participation.

Keywords: Flexible spending accounts; Status quo bias; Loss aversion; Prospect theory (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:81:y:2019:i:c:p:47-55

DOI: 10.1016/j.socec.2019.05.007

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