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Endogenous Status Quo

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  • Daniele Pennesi

Abstract

This paper proposes an intuitive definition of status quo that is model-free and given in terms of observable choices only. We do not rationalize status quo-dependent preferences, to the contrary, we show that models of decision under ambiguity already predict behavioral phenomena ascribed to status quo bias. In particular, an ambiguity averse individual keeps the status quo whenever she has a minimal reason to do it. This offers a possible explanation to the experimental evidence that ambiguity averse individuals may prefer their ambiguous status quo to an unambiguous alternative. We provide conditions for the existence of a status quo and we show they are always satisfied by a MaxMin decision maker. Applications to portfolio choice generalizes well known no-trade results proving that, trade can be optimal when the status quo is ambiguous.

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  • Daniele Pennesi, 2013. "Endogenous Status Quo," Carlo Alberto Notebooks 314, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:314
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    References listed on IDEAS

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