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Status quo bias, multiple priors and uncertainty aversion

Ortoleva, Pietro (2010) Status quo bias, multiple priors and uncertainty aversion. Games and Economic Behavior, 69 (2). pp. 411-424. ISSN 0899-8256.

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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 an agent for each possible status quo option, and provide a characterization according to which the agent considers a full-dimensional set of possible priors and abandons her status quo option only if she finds an alternative that returns a higher expected utility for each of these 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.

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Additional Information:© 2009 Elsevier. Received 25 September 2008. Available online 11 December 2009. I would like to thank Heski Bar-Isaac, Paolo Ghirardato, Massimo Marinacci, Yusufcan Masatlioglu, David Pearce, Debraj Ray, Tom Sargent, the participants at seminars at NYU, at RUD 2007 at Tel Aviv University, at The Conference on Game Theory at Stony Brook, an anonymous referee and especially Efe Ok and Gil Riella for extremely useful comments and suggestions.
Subject Keywords:Status quo bias; Ambiguity aversion; Endowment effect
Issue or Number:2
Classification Code:JEL classification codes: D11; D81
Record Number:CaltechAUTHORS:20101004-082123852
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:20264
Deposited By: Tony Diaz
Deposited On:05 Oct 2010 16:37
Last Modified:03 Oct 2019 02:07

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