Handbook of Behavioral Industrial Organization
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Handbook of Behavioral Industrial Organization

Edited by Victor J. Tremblay, Elizabeth Schroeder and Carol Horton Tremblay

The Handbook of Behavioral Industrial Organization integrates behavioral economics into industrial organization. Chapters cover concepts such as relative thinking, salience, shrouded attributes, cognitive dissonance, motivated reasoning, confirmation bias, overconfidence, status quo bias, social cooperation and identity. Additional chapters consider industry issues, such as sports and gambling industries, neuroeconomic studies of brands and advertising, and behavioral antitrust law. The Handbook features a wide array of methods (literature surveys, experimental and econometric research, and theoretical modelling), facilitating accessibility to a wide audience.
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Chapter 7: Status quo bias

Don E. Waldman

Abstract

Status quo bias has become an increasingly important explanation for economic behavior in a number of fields within economics. Industrial organization is one of the fields where status quo bias can provide a significant amount of insight into the behavior of consumers and firms. In this chapter we show that rational individuals often forgo making economically rational decisions because they are biased in their decision making ability by the existence of a status quo bias. We also show how status quo bias can help us understand, among other things: the financial crisis, firms’ use of satisficing behavior, a reduction in the rate of technological advance, a less efficient market for corporate control, and increased network effects. As a result, industrial organization economists should consider incorporating a status quo bias into more of their theoretical and empirical work.

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