STATUS QUO BIAS Why we don’t like change

1. STATUS QUO BIASWhy we don’t like change Warning: Images in this file are compressed. Please refer to the google drive for a non-compressed version

2. ? Status quo bias – test yourself Imagine you own some shares that have lost 30% of their value in the last few months. Because we are affected by loss aversion the chances are we won’t sell them though. But imagine you leave your computer to make a coffee and your 4 year old son starts randomly pressing buttons on the computer looking for a game. When you come back you find he’s managed to sell all your shares! What do you do? Will you buy them back instantly?

3. DEFINITION 2

4. The Status Quo Bias! We have an inbuilt bias to avoid change. We prefer to stick to how things are. We get stuck into certain familiar routines or habits We don’t like to be different to others around us We can be influenced by the person or organisation who has selected the default, if we think they are an expert or an authority in that area. We are lazy and often have limited time to research alternatives 3

5. Status Quo bias definition We suffer from inertiaand prefer to avoid change and stick with the current situation or what has already been selected for us – the ‘default’. Source: Freedman, J., Fraser, S.C., “Compliance without pressure: The foot-in-the-door technique” Journal of Personality & Social Psychology, 1966, Vol 4, No. 2, 195-202 4

6. SCIENTIFIC EVIDENCEEvidence that supports the existence of status quo bias 5

7. Low numeracy and old age increase status quo bias in medical decisions (i) Many patients prefer to stick to their current treatment or medication even when newer, more effective options become available. Status quo bias prevents patients from receiving the optimal medical care. Study: Behavioural scientists investigated the drivers behind status quo bias in medical decision making, trying to understand whether numeracy and age influence who is afflicted by the bias. The researchers conducted face to face interviews with 156 rheumatoid arthritis (RA) patients about their treatment choice. Sticking to the old treatment? Or trying the new treatment? Source: Fraenkel, F., Cunningham, M. & Peters, E. P. (2015) Subjective Numeracy and Preference to Stay with the Status Quo. MedDecis Making. 35(1): 6–11.

8. Low numeracy and old age increase status quo bias in medical decisions (ii) Results: The study found that people with high numeracy showed little status quo bias if they were age 65 or younger. However, good numeracy did not lessenstatus quo bias among people older than 65 Percentage of people preferring the status quo Low numeracy High numeracy Explanation: Numeracy helps people to correctly evaluate the risks of new treatments. Less numerate individuals tend to perceive greater risks in new treatments.Older people may avoid making decisions altogether and see a decline in decision making abilities. Therefore, they may stick with the status quo. Source: Fraenkel, F., Cunningham, M. & Peters, E. P. (2015) Subjective Numeracy and Preference to Stay with the Status Quo. MedDecis Making. 35(1): 6–11.

9. Neuroscience behind status quo bias:Sticking with the status quo reduces regret People learn from this experienceif they go against the status quo. The next time they make a decision, they may prefer the status quo to avoid the neurological error message and feelings of regret. To investigate the neurological drivers behind status quo bias, researchers measured people’s neurological response during two scenarios: Going against the status quo and the decision turns out wrong Going with the status quo and the decision turns out wrong vs. Researchers recorded different levels of brain activity in the anterior insula and medial prefrontal cortex (mPFC)which are associated with erroranticipation and error avoidance: Low activity in anterior insula and mPFC High activity in anterior insula and mPFC Lowerfeelings of regret Greaterfeelings of regret Source: Nicolle, A. et al. (2011). A regret-induced status-quo bias. Journal of Neuroscience. 31(9): 3320–3327.

10. Status quo bias - Scientific background (i) A classic study which illustrated status quo bias was conducted by William Samuelson and Richard Zeckhauserin 1988. Setting participants a series of 8 questions they showed how decisions were swayed when there was already an existing situation. OPTION 1 OPTION 2 OPTION 3 STATUS QUO OPTION Source: Williamson, S., & Zeckhauser, R. “Status quo bias in decision-making” Journal of Risk and Uncertainty, 1: 7-59 (1988) 6

11. Status quo bias - Scientific background (ii) • For example, one set of questions asked participants about an investment choice. • One group was asked to choose from four options (below) • A second group was asked to imagine they were already invested in one of the options, but could change their investment to one of the other three options if they preferred. MODERATE RISK HIGH RISK TREASURY BILLS / LOW RISK BONDS / LOW RISK Source: Williamson, S., & Zeckhauser, R. “Status quo bias in decision-making” Journal of Risk and Uncertainty, 1: 7-59 (1988) 6

12. Status quo bias - Scientific background (iii) • For example, one set of questions asked participants about an investment choice. • One group was asked to choose from four options (below) • A second group was asked to imagine they were already invested in one of the options, but could change their investment to one of the other three options if they preferred. Answers to the questions varied considerably depending on whether the question was posed with or without an existing status quo. For example, only 32% of students chose to invest in municipal bonds when the question was a new decisioncompared to 47%remaining invested in bonds when it was already the status quo. MODERATE RISK HIGH RISK TREASURY BILLS / LOW RISK BONDS / LOW RISK Source: Williamson, S., & Zeckhauser, R. “Status quo bias in decision-making” Journal of Risk and Uncertainty, 1: 7-59 (1988) 6

13. Status quo bias - Scientific background Samuelson and Zeckhauser went on to analyse a real life situation in the same paper – that of Harvard University Health Plan choices in the 1980s. They found strong evidence of status quo bias in health insurance plan choices with very little switching between plans to ensure optimal investment. Only around 3% of people switched between plan providers each year. Source: Williamson, S., & Zeckhauser, R. “Status quo bias in decision-making” Journal of Risk and Uncertainty, 1: 7-59 (1988) 7

14. Status quo bias - Scientific background (i) We may also suffer from status quo bias and procrastination when choices conflict. When we face equally good options we may defer our decision. A famous study by Amos Tversky and EldirShafiranalysed this type of situation. ? Source: Tversky, A., Shafir, E., “Choice under conflict: The dynamics of deferred decision” Psychological Science, Vol 3, No. 6, 1992 8

15. Status quo bias - Scientific background (ii) Group 2 A Sony CD player for $99? or An Aiwa CD player for $159? Group 1 A Sony CD player for $99? Source: Tversky, A., Shafir, E., “Choice under conflict: The dynamics of deferred decision” Psychological Science, Vol 3, No. 6, 1992 9

16. Status quo bias - Scientific background (iii) Group 1 A Sony CD player for $99? 34% chose to defer choice Group 2 A Sony CD player for $99? or An Aiwa CD player for $159? 46% chose to defer choice Source: Tversky, A., Shafir, E., “Choice under conflict: The dynamics of deferred decision” Psychological Science, Vol 3, No. 6, 1992 10

17. EXAMPLESExamples of status quo bias 11

18. uSwitch dial down status quo bias At the end of the application to switch energy suppliers customers are told: “Don’t worry if you change your mind, you can just drop out or revert back.”

19. Status quo bias is the reason why we… Feel free to pick out & mix relevant examples from the next 2 slides …just go to our favourite restaurant …eat the same breakfast …go to the same place on holiday …stick with the same phone operator

20. Status quo bias is the reason why we… …stay in the same career …go to the same bar …don’t change our pension provider …stay loyal to our favourite crisps

21. Despite the financial crisis and loss of trust, people still don’t switch banks In the UK in 2010, just 4% of customers switched bank accounts. Even with a recent change in policy, only around 2.5% of people with current accounts switched bank in 2014. 14

22. Avoiding action: Omission bias and the status quo (i) Omission bias is when people judge harmful actions as worse than equally harmful inactions. We prefer the status quo rather than choosing something where we must take responsibility for a bad outcome and suffer a possible loss. *Zikmund-Fisher et al “A Matter of Perspective: Choosing for Others Differs from Choosing for Yourself in Making Treatment Decisions“, 2006) 12

23. Avoiding action: Omission bias and the status quo (ii) • This scenario illustrates omission bias: • Imagine there is a deadly fluwhich kills 10% of the population • But there is a vaccinethat kills 5% of the population who take it. • Research shows that most people prefer to nothave the vaccine *Zikmund-Fisher et al “A Matter of Perspective: Choosing for Others Differs from Choosing for Yourself in Making Treatment Decisions“, 2006) 13

24. QUOTES

25. “If it ain’t BROKE don’t fix it!” 15

26. “If it ain’tBROKE don’t fix it!” Bert Lance May 1977, Nation’s Business 15

27. Status quo and loss aversion in the workplace… 17

28. Status quo bias – tackling our own biases 18

29. “Our dilemma is that we hate change and love it at the same time; what we really want is for things to remain the same but get better.” Sydney J. Harris, author and journalist 20

30. “First, never underestimate the power of inertia. Second, that power can be harnessed.” Richard Thaler, behaviouraleconomist at the University of Chicago 21

31. “To do nothing is within the power of all men” Samuel Johnson 18th century poet, essayist moralist 22

32. “If I had asked people what they wanted, they would have said faster horses.” Henry Ford Founder of the Ford Motor Company 23

33. Belsky, G., Gilovich, T. “Why Smart People Make Big Money Mistakes” Simon & Schuster, 1999 Johnson, E., Goldstein, D. “Do defaults save lives?” Science, Vol. 302, Nov 2003 New Scientist, “Friendly Nudge” - Letter from Liz Barker and Crawford Hollingworth, 20th Dec 2011 Sunstein, C., Thaler, R., “Nudge” 2008 Tversky, A., Shafir, E., “Choice under conflict: The dynamics of deferred decision” Psychological Science, Vol 3, No. 6, 1992 UK Cabinet Office Behavioural Insights Team Annual Update, September 2011 Williamson, S., & Zeckhauser, R. “Status quo bias in decision-making” Journal of Risk and Uncertainty, 1: 7-59 (1988) Zikmund-Fisher et al “A Matter of Perspective: Choosing for Others Differs from Choosing for Yourself in Making Treatment Decisions“, 2006 24