No I am not talking about a bias towards liking or disliking the musical band Status Quo!
What is status quo bias?
Status quo bias is when people have a preference to continue to stay the same by taking no action or by sticking with a decision that has been made previously. This could even be when at times a person may want to proceed but then change their mind and convince themselves it would be better to keep with the status quo.
Examples of this in relation to personal finance could be sticking with a contribution or withdrawal level for long periods of time, not being prepared to change investment funds/providers or banks, or automatically renewing insurances with the same company.
Some people would take the approach of ‘if it isn’t broke, don’t fix it’ without actually knowing if that is the case. It is fairly common that when working with new clients to review policies which were set up more than 10 or even 20 years ago.
What’s the problem with this?
In simple terms it can negatively impact the ability to make decisions.
This may include:
- inferior quality of product or service,
- a lack of time saving,
- increased cost,
- Reduced return,
Essentially missing out on the potential for something more beneficial.
What should you do to prevent this?
Whilst acknowledging that many people dislike change of any kind and that this bias can be unconscious, it is important to question and challenge yourself.
As someone with three small children I am currently used to being asked ‘Why?’ about everything and I am not saying it needs to go to that extreme, but stopping to think from time to time and being open minded to new ideas and challenge either internally or externally can prevent this.
That doesn’t mean that constant change is actually necessary, but rather being open to the potential that could be the correct course of action and being willing to proceed with it.