Status Quo or Decoy; An Experiment∗

Abstract

The classical choice theory assumes that an individual’s choice does not depend on irrelevant alternatives or the way that alternatives are labeled; such as an endowment or a default. However, phenomena such as the “Status Quo Bias” and “Attraction Effect” which apparently imply violation of rationality, have been widely observed. Even though they exhibit similar pattern of choices, the relationship between these two phenomena has never been studied yet. This study (1) separates the influence of the endowment and the decoy option in people’s choice behavior, and (2) investigates the determination of the reference point in situations where both an endowment and a decoy option are in the set of available alternatives. Our experimental data shows that a status quo has a stronger impact on individual choice behavior compared to a decoy option. Moreover, a status quo is a better candidate for reference point even in a choice set where there are both status quo and decoy options. These results increase our understanding of both reference dependence and the attraction effect. JEL Classification: D11, D81.

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Cite this paper

@inproceedings{Masatlioglu2006StatusQO, title={Status Quo or Decoy; An Experiment∗}, author={Yusufcan Masatlioglu and Neslihan Uler}, year={2006} }