Read this, in majority, people tend to stick with their status quo
(existing condition) if they were to given a choice whether to change to a new condition or keep the existing condition without compelling incentives.
Ok, maybe you think “That’s a common sense! Please give us more worth to read post!”
If you think like that, you have to take this “Embodied Economics and Cognition” course which was held today, from morning until afternoon, where everyone had their Culture’s Day National Holiday. This course was lectured by Prof. Yamagishi from Human Science Department and a guest lecture Prof. Maya Bar-Hillel, an Israel psychologist. Despite the Israel background of her (because I think the whole course and the theory had nothing to do with it – as you know there are still conflicts between Muslim and Jewish), this course explains about Status Quo Label Bias, a paper of her and her Doctoral Student which hasn’t been published yet. So I would say that I’m lucky to had attended this course and hear something that could be useful in making decision.
There was a research conducted by Kahneman, Knetsch, and Thaler 1991 which bring down a theory called “The Endowment Effect”. There are two classes, where students in class A were given a pen each, and class B students are given a mug each. In every classroom, the researcher offered the students to change for pen for the students in class A, and change for mug for students in class B. The students just have to ask the researcher to change their mug/pen. If the economy theory was true, that everyone wants to do a trade, so it is expected by the end of the class, 50% of students in each class holds a different goods than they have first, because the student is chosen at random to present their interest to mug or pen. But the result was, very few students want to trade their mug or pen.
Why? Is not hard to just raise your hand and ask for change, right? The students are experiencing psychological condition, which contradict the economic theory. Roughly to say, this theory said that once you have owned something, you start valuing it higher. So that’s why people prefer status quo rather than any change in status quo offered to them, if
the new condition has advantage and disadvantage, in other word, there’s a trade off between your status quo and the new condition. Of course, when the other choice is advantageous from any side – or in other word, compelling incentives – people would dare to leave their status quo looking for a better condition.
Why? Well there are a few reasons;
You have to pay for the transaction cost (I’d more like to call it switch cost, which I know that it is the correct term for a cost that you have to buy when you switch or change to other things, where transaction cost is a cost you have to spend for something that you can’t make by yourself – for example, contract fee to a new supplier).
The simplest example is, when you want to change from mobile operator A to B, you have to pay cancellation fee to A, you would spend time, energy, and money to work for the administration even the new subscription fee for B is free, you may even have to spent another time to adjust with the new mobile operator system.
- You don’t want to get out from your comfort zone; that is your existing condition now, because you’ve already familiar with it.
- There is uncertainty or risk contained in the new condition. Even if that you have considered the effect for the alternative choice, the risk is still there. Maybe it comes from your miscalculation, and the environment itself cannot always posses’ certainty.
This behavioral approach of decision making is also brought by Herbert A. Simon on his book “Administrative Behavior”. The concept of Economy Man, who is always rational and see for the choice that brings the most efficiency to him, is criticized by Simon because there’s more than rationality to make a decision process. That is the behavior of the man itself. Sometimes, the man don’t have enough knowledge to analyze all the alternative choice so he would choose the choice that satisfy him enough, but that choice is not the one which bring maximum advantage. And there is lots of behavioral theory that should be considered along with the rationality theory.
Another thing, Prof. Bar-Hillel tells us an example of exam system is Israel and USA. In Israel, where most of the students work under military too, the exam system is scattered in the span of 5-6 weeks. And if they feel dissatisfied with the grade, or they can’t attend the first exam, another 5-6 weeks second exam is held. And if there’s still someone who just take the exam on the second period and still feel unsatisfied with the grade, he can take another remedial in the third exam period. But in USA, the exam is just held in one week according to the regular class schedule. No remedial but you can take a summer vacation sooner J
Then the Israel University student is asked, “Would you change your exam system now to the USA system?” and the USA university student is asked vice versa. The result was, both of them reject the system offered. Why? The Israel students argued that they won’t have a time to study and the remedial. The USA students argued that their summer vacation would be interrupted. If you examined closely, the Israel students would gain “a better summer vacation time” and the USA’s would have a lot of time to study and also chance to correct the grade if they accept the offer. So, why they won’t trade it? Simple, it’s because of the status quo. For Israel students, they would have to lose their chance to remedial and more time to study in order to gain better summer vacation. People tend to be risk averter
in gain, and risk seeking
in losses. It guided you to the concept of loss aversion, where the pain of losing 1000 yen, for example, is larger than the pleasure of 1000 yen. Losses loom larger than gains. Well it’s not just only the effect of loss aversion, but also some of terms like responsibility cost, judgmental bias, asymmetric regret, omission bias, and decision aversion.
From the theory described above, it could explain why when you’re trying to establish a new policy, not everyone is willing to take it. Policy, differ by concrete goods, is something abstract that you can’t actually measure rationally because of the loss aversion and friends effect. People wouldn’t want to sacrifice the things they had now (loss) in change of new policy that actually advantageous for them (gain). If it runs the contrary, well, the company could have implemented any new system easily, no one would feel loss to the condition they’re having now.
But it’s too early to draw a conclusion that “Yes it’s hard to change something due to people’s status quo, so you have to give clear and compelling incentives to attract people get out from their status quo”. There’s something you can still do in order to make them get out from their status quo.
The paper done by Prof. Bar-Hillel and her student that I mentioned above is called status quo label bias. It shows empirically that you just have to make the people feel that the new thing you’re offering is their status quo, in other words, just label the new policy as status quo, and people will choose the status quo condition, which is the new policy.
Seems tricky, isn’t it?
She gave me an example comes from the Israel – Palestine war. Suppose that there is a land (I forgot the name, but it’s actually exists) where it was originally Palestinian’s, then taken over by Israel, and now civilized by Jewish. Israel and Palestine then want to deal for a peace treaty, but for that, the land must be given back to Palestine.
But, if the land was to be given to the Palestine, the Jewish civilian in that land had to choose an option between get out from that land, or to obey Palestine’s jurisdiction and law. The Israel chief then makes a referendum to the residents, whether they want to give away their land in order to attain peace.
“Would you give up our land
in order to attain peace?”
Of course, if the chief asked the people like that, the answer would be “NOOOOO!!” with all of the yells and cries. Unconsciously, the statement gives a label status quo to the “you have a land now” and label a gain for “peace”. So, based on the loss aversion theory, it’s obvious that they won’t give the land because they would feel loss if they want to gain peace.
But, how if it is like this;
“Do you want to give up for peace
just because you don’t want to give the land?”
Seems to be a better sentence, isn’t it? Well unconsciously, you’re giving a status quo label for “peace”, and if you don’t want to give the land, then you’re an obstacle to “peace”. You’ll lose the “peace” if you don’t want to give the land. If it’s like that, she stated that, probably there’ll be more people willing to give the land to Palestine.
So, when you want to change something, you have two options. One is to give the change with more force; more compelling and clearer incentives that everybody would love to lose their status quo now in order to get an appealing new policy. The other is, just to label the new change as the status quo, and then in majority, people would want to stay with the new option because in their head, they think that it’s their status quo.
There’s more than just listing out the advantages of new policies and tell the people about it. It’s not enough to change the people’s status quo in mind.
I hope this knowledge will not be used for you to change for something bad. I have a lot of friends who’s currently the decision maker and really willing to make a change, so I hope this bit of knowledge could help them out.
So, change is not dreadful, isn’t it? :p