Friday, August 5, 2016

Cognitive Bias: Status Quo Bias

Status quo bias goes by many names, but to put it simply, "if it works why change anything"   Any change form the current situation is judged to be unacceptable.

Scam victims often suffer from status quo bias, esp. after they learned the scheme they've latched onto or recruited into isn't on as firm legal and financial footing as they were lead to believe. Even when presented with all the evidence that they are in a scam, they will keep saying "I don't know if XXX is a scam. Time will tell." They don't want anything to change, even when more viable alternative such as attempt to withdraw from the scheme, report fraud to the police, and so on seem to be more reliable method of dealing with the fraud.

Status quo bias is often mixed up with other biases, such as loss aversion, sunk cost fallacy, longevity (appeal to age fallacy), endowment effect, regret avoidance, and more.

Why Do We Have Status Quo Bias

Behavioral Economists Kahneman and Tversky published a paper back in 1982 that found people feel greater regret for bad outcomes that result from new actions taken, than for bad consequences that are the consequences of inaction. In other words, if doing something is bad, and not doing anything is also bad, people tend to do nothing. One possible explanation is people can then blame circumstances (I didn't change anything, circumstances changed) rather than take responsibility for their own choices. This is a fallacy, of course, since choice to do nothing is still a choice.

How Status Quo Bias interacts with other biases

Endowment effect is also known as "divestiture aversion" in behavioral economics. Basically, people ascribe more value to things merely because they own them. It's also related to "mere ownership effect" in social psychology.  It can be described simply as "once you have it, you will want to keep it than give it up".

Sunk Cost fallacy is related, in that "once you started on a course of action, you justify your continual involvement by claiming you already spent effort and resources (sunk costs) and you cannot let it go to waste when it seems more prudent to cut the losses and change course."

As an example of endowment effect, people will often pay more to retain something they own, than to obtain something they do not own, even when there is no reason for attachment, and even when the object was obtained merely minutes ago.

Dan Ariely and Ziv Carmon did a test on hypothetical selling price (willingness to accept) NCAA Final Four tournament tickets. They found that the ratio of WTA (willingness to accept) vs WTP (willingness to pay) is 14 to 1. In other words, those who have the ticket want 14 times higher the price those that don't have the tickets are willing to pay.

An example of sunk cost fallacy is another experiment by Kahnemann and Tversky involving theater tickets. Let's say, there are two groups. Group A) you are going to watch a movie, having already bought the ticket. Upon arrival, you realized you've lost the ticket. Will you pull out $10 and buy another one? Group B) you are going to watch a movie, but you haven't bought the ticket yet. Upon arriving at the theater, you realized that the $10 bill you were going to buy the ticket with is gone. Will you pull out another $10 and buy the ticket any way?

The scenario is the same: Will you pay $10 to watch the movie?  The surprise is in group B (lost cash) 88% of people said they will buy the ticket any way, but only 46% of group A (lost ticket) is willing to buy another ticket. In their mind, they are paying $20 for a ticket, not $10. That is sunk cost fallacy.

In scams, once victims have "bought in", they are often paid back with a small amount to make them feel the scam is working, and now the endowment effect kicks in (they already own it) along with sunk cost fallacy (they already put in the money), and fear of missing out (FOMO) (they may miss the big payoff).

How Scammers Use Status Quo Bias

Scammers are intimately aware of status quo bias, once they have gotten your money by basically lying to you about the risks and rewards (maximize reward, minimize risk).  They know that it will take a lot of bad news to change your mind and take your money back out, and they obviously are trying to prevent people from taking their money back out of the scam and leave. They will release various explanations and such to cast doubt on facts detrimental to their propaganda efforts. This is commonly known as "spin".

For example, if a certain central bank of a major nation severed ties with a certain bogus cybercurrency, and certain members of such scam selling such cybercurrency was arrested for fraud, the scam can say "We have receive no reports and charges of such. Our cybercurrency is not on that nation's banned list."  What they didn't tell you is there is no such banned list. That nation banned ALL cybercurrency several years ago.  But their spin sounds much more harmless, doesn't it? The minions who read the "news" released by the scam will tend to want to leave the way things are, i.e. let status quo take over, and not attempt to cash out of the scam. (The fact that they may not be able to is a different problem altogether)

By presenting information you can accept (even though you can't verify them), they have somewhat neutralized the bad news, hopefully pushing your desire to withdraw below the threshold to take action, and status quo bias (and endowment effect, and FOMO) will do the rest.

Ponzi and Pyramid Scheme Victims

Ponzi and pyramid scheme victims are esp. vulnerable to Status Quo Bias, as they have been pre-emptively taught by the scammers to ignore "criticism" of the scheme ("it's just haterz", "they're just jealous of our success" and so on) and no matter how many facts you throw at them they are unlikely to change their position. Cognitive dissonance cause them to postpone taking any decision, and the result is Status Quo takes over, and they decide that "wait and see" is the best approach despite there may be a chance to execute an exit strategy.

How to Counter Status Quo Bias

Recognizing the onset of Status Quo Bias is the first step in counteracting it, but that requires a neutral mind. Someone already affected by such are often unwilling and/or unable to see such bias in oneself. A neutral third party trusted by the victim is needed to show that the victim is not making sound decisions, but not with a direct attack, but rather, point out potential mistakes in the decision process, and show how factors have been overlooked / ignored, and hopefully trigger the victim's self-preservation instincts.

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