Keyword Analysis & Research: status quo bias behavioral finance

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Frequently Asked Questions

What is status quo bias in investing?

Status quo bias is a preference for the current state of affairs. It’s the act of avoiding change due to the risk of loss compared to the status quo reference point. For example, individual investors tend to be much more willing to sell a stock that has gained in value, but opt to hold on to a stock that has lost value.

Can loss aversion explain the status quo bias?

Loss aversion, therefore, cannot wholly explain the status quo bias, with other potential causes including regret avoidance, transaction costs and psychological commitment. A status quo bias can also be a rational route if there are cognitive or informational limitations. Decision outcomes are rarely certain, nor is the utility they may bring.

What bias affects your investment decisions?

Investors may have a familiarity bias, where they prefer stocks in companies that they buy products from, that they work for, or where they have a family connection. Because of familiarity bias, investors may misread past or future market fluctuations thinking that they’re predictable, resulting in overconfidence. 5. Status quo bias

What experiments have been done to prove status quo bias?

Kahneman, Thaler, and Knetsch created experiments that could produce this effect reliably. Samuelson and Zeckhauser (1988) demonstrated status quo bias using a questionnaire in which subjects faced a series of decision problems, which were alternately framed to be with and without a pre-existing status quo position.

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