2020/06/26 by Miguel A. Costa‐Gomes, Costa-Gomes, Miguel, Georgios Gerasímou +1
Decision Sciences · Economics, Econometrics and Finance · Social Sciences · #Decision-Making and Behavioral Economics #Economic and Environmental Valuation #Experimental Behavioral Economics Studies #FOS: Economics and business #General Economics (econ.GN)
paper · pdf · doi:10.48550/arxiv.2006.14868
openalex publication_date 2020/06/26 · openalex created_date 2022/07/26 · openalex updated_date 2026/07/28
Inertia and context-dependent choice effects are well-studied classes of\nbehavioural phenomena. While much is known about these effects in isolation,\nlittle is known about whether one of them "dominates" the other when both can\npotentially be present. Knowledge of any such dominance is relevant for\neffective choice architecture and descriptive modelling. We initiate this\nempirical investigation with a between-subjects lab experiment in which each\nsubject made a single decision over two or three money lotteries. Our\nexperiment was designed to test for dominance between *status quo bias* and the\n*decoy effect*. We find strong evidence for status quo bias and no evidence for\nthe decoy effect. We also find that status quo bias can be powerful enough so\nthat, at the aggregate level, a fraction of subjects switch from being\nrisk-averse to being risk-seeking. Survey evidence suggests that this is due to\nsubjects focusing on the maximum possible amount when the risky lottery is the\ndefault and on the highest probability of winning the biggest possible reward\nwhen there is no default. The observed reversal in risk attitudes is\nexplainable by a large class of Koszegi-Rabin (2006) reference-dependent\npreferences.\n