Limited attention and status quo bias
Dean, Mark and Kıbrıs, Özgür and Masatlıoğlu, Yusuf Can (2017) Limited attention and status quo bias. Journal of Economic Theory, 169 . pp. 93-127. ISSN 0022-0531 (Print) 1095-7235 (Online)
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Official URL: http://dx.doi.org/10.1016/j.jet.2017.01.009
We introduce and axiomatically characterize a model of status quo bias in which the status quo affects choices by both imposing psychological constraints and focusing attention. The resulting Limited Attention Status Quo Bias model can explain both the findings that status quo bias is more prevalent in larger choice sets and that the introduction of a status quo can change choices between non-status quo alternatives. Existing models of status quo bias are inconsistent with the former finding while models of decision avoidance are inconsistent with the latter. We show that the interaction of the two effects has important economic implications, and report the results of laboratory experiments which show that both attention and psychological constraints are necessary to explain the impact of status quo on choice.
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