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Behavioral finance

Y

yogesh167

Member
Hello

I get confused between status quo bias and regret aversion, could anybody please explain the thin line between these two?
Regards
Yogesh
 
Hi Yogesh

I agree they do seem similar. I think different texts explain these biases in different ways but my take on these biases is as follows:

Both biases are applicable in situations where an investor is deciding whether to continue to hold their current asset, or sell it and invest in another asset. Both biases will lead the investor to decide to continue to hold their current asset.

The motivation for sticking with the current asset is different for each bias:

- people experiencing status quo bias are just naturally conservative - they favour the current situation, the status quo

- people experiencing regret aversion stick with their current asset because they feel that if they switch to an new asset and then something goes wrong, they will experience more regret than if they stick with their current asset and something goes wrong.

I think we only know both biases exist because of carefully controlled experiments by researchers

Hope that helps

Gresham
 
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