Status Quo Bias, Multiple Priors and Uncertainty Aversion

Ortoleva, Pietro

Status Quo Bias, Multiple Priors and Uncertainty Aversion

MPRA Paper from University Library of Munich, Germany

Abstract: 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. We develop an axiomatic framework that takes as a primitive the preferences of the agent for each possible status quo option, and provide a characterization according to which the agent prefers her status quo act if nothing better is feasible for a given set of possible priors. We then show that, in this framework, the very presence of a status quo induces the agent to be more uncertainty averse than she would be without a status quo option. Finally, we apply the model to a ﬁnancial choice problem and show that the presence of status quo bias as modeled here might induce the presence of a risk premium even with risk neutral agents.

Keywords: Status quo bias; Ambiguity Aversion; Endowment Eﬀect; Risk Premium (search for similar items in EconPapers)
JEL-codes: D11 D81 (search for similar items in EconPapers)
Date: 2008-09
New Economics Papers: this item is included in nep-cbe and nep-upt
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Related works:
Journal Article: Status quo bias, multiple priors and uncertainty aversion (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:12243

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