Deciding not to Decide is a Decision

Decision Paralysis... Status Quo Bias ... Endowment Effect ...Regret Aversion


This explains how human tendencies can lead us to avoid or delay action.

Decision paralysis is the main effect of human tendency to resist change . That is people are almost preternaturally predisposed to the familiar , to keeping things much as they have been. Behavioral economics call this status quo bias.

1)Imagine you are a serious reader of financial times but until recently you have had little money to invest .Now a great-uncle has bequeathed to you a large sum of money. Will you invest in equity?
2)Now imagine that you have got shares of some XYZ company (instead of money)from your uncle . Will you sell the shares?

Most probably in first situation you will hesitate to invest in equity while in the second situation you most probably keep the equity investment.

The above example explains status quo bias. Similarly endowment effect expalins that people place un-realistically high price for which they are holding compared to the things they are not holding ( this is why retailers offer trail periods and money-back guarantees).

The other reason people hesitate to invest in equity is regret aversion ,which means people want to avoid the pain of regret and the responsibility for negative outcomes.And to that extent the desicions to act impart a higher level of responsibility than decisions to do nothing.

But remember Deciding not to Decide is a Decision.

"Why Smart People Make Big Money Mistakes" - Gary Belskey & Thomas Gilovich