The status quo bias refers to an exaggerated preference for the way things currently are. It is resistance to change.
Small changes might be appreciated, but the more radical the change, the larger our resistance. This inability to be flexible can cause a lot of stress when circumstances force people out of their routine.
Status quo can be expensive
Holding on to what you already have, might be expensive as you close your eyes to potential opportunities. Every day, you use your current bank, credit card, mobile phone plan, apps, broadband and TV subscription.
Your routine includes visits to the same restaurants, supermarkets, food stalls and coffee shops and buying the same things every day.
The last time you compared these products or stores is probably quite some time ago. You could probably save hundreds of ringgits by comparing your current provider or store with its competitors to see if there isn’t a better or cheaper (or both!) product out there for you!
Regrettably, offers and deals for new customers are typically much higher than offers for loyal customers!
To keep a certain credit card with an annual fee you already have feels like a very different (less radical) decision than to apply for that same credit card in case you don’t have it yet.
Despite the different feelings, the question is ultimately the same: do you want to pay for this credit card for the next year?
However, your decision will be very different: people are much more likely to keep their current cards than to apply for new ones. That is why providers like to get you on board: you are much less likely to hop off.
Why do we like the status quo?
The disadvantages of change typically seem direct, real and concrete, while the promised advantages of change seem indirect and vague.
People are afraid of change because they are afraid they might lose something, hence loss aversion and regret avoidance play a large role.
People typically feel greater regret for negative outcomes that are caused by something that they actively did, than they feel regret for negative outcomes that are the result of their inaction. People also feel more in control if they resist change. Keeping the status quo also looks more consistent with previous made commitments.
Nudging people into a choice
If you are able to decide the current situation, for example because you have the power to design the default option, you have a very powerful tool to ‘nudge’ people into making the decision that benefits you most.
Let me give you three examples.
Broadband packages often come with voice plans for an extra charge. Whether people accept the voice plan is for a large part decided by the fact whether the package is presented as already including the voice plan or not.
A similar point can be made for personal loans with takaful insurance. Assuming the takaful insurance is not mandatory, you can sell more by presenting the personal loan as including takaful insurance, than if you would try to sell it as a separate product.
If your company tells you that 11% EPF contribution is standard and you need to act if you want to lower it to 8%, you will get a very different outcome, then when the company says 8% is the new standard and you have to react if you want to maintain it at 11%.
How to nudge job benefits
Let’s say employees that are getting a promotion have the choice between a RM10,000 raise or 10 extra days of paid leave. Assume the company wants employees to take the pay raise and not the paid leave, without taking away their free choice.
How would it do this? Very simple: instead of congratulating them and giving them the choice between both options, you give employees the RM10,000 raise.
Then, you tell them “by the way, if you are more interested in 10 days of additional paid leave, that’s also possible, you just have to give up the RM10,000 raise we just gave you”.
Now, you have made the raise the default option and made that into their new status quo. Employees will now feel they have to “give up” RM 10,000 for their paid leave, which is much harder.
Overcome the status quo by being more open to change. Think about what you really want in the future, regardless of what you currently have.
Be proactive and make changes even if it requires some effort from your side. Don’t settle for the default option anyone tries to sell to you!
Mark Reijman is co-founder and managing director of http://www.comparehero.my/, dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, loans and broadband plans in Malaysia.
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