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Status Quo Bias, Multiple Priors and Uncertainty Aversion

Author

Listed:
  • Ortoleva, Pietro
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.

Suggested Citation

  • Ortoleva, Pietro, 2008. "Status Quo Bias, Multiple Priors and Uncertainty Aversion," MPRA Paper 12243, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:12243
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Status quo bias; Ambiguity Aversion; Endowment Effect; Risk Premium;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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