The Believing Brain - Michael Shermer [143]
These observations are examples of the sunk-cost bias, or the tendency to believe in something because of the cost sunk into that belief. We hang on to losing stocks, unprofitable investments, failing businesses, and unsuccessful relationships. With the attribution bias throttled up we concoct rational reasons to justify those beliefs and behaviors in which we have made sizable investments. The bias leads to a basic fallacy: that past investment should influence future decisions. If we were rational we would just compute the odds of succeeding from this point forward and then decide if additional investment warrants the potential payoff. But we are not rational, not in business, certainly not in love, and most especially not in war. Consider the cost we’ve sunk into the wars in Iraq and Afghanistan. These wars are costing us $4.16 billion a year in military expenditures alone, an incredible 10.6 percent of GDP, not to mention the billions of dollars spent in nonmilitary expenditures, along with the 5,342 Americans killed (at the time of writing, a figure that grows by the day). No wonder most members of Congress from both parties, along with presidents Obama, Bush, Clinton, and Bush have all stated that we’ve got to “stay the course” and not just “cut and run.” President George W. Bush explained in a July 4, 2006, speech at Fort Bragg, North Carolina: “I’m not going to allow the sacrifice of 2,527 troops who have died in Iraq to be in vain by pulling out before the job is done.”19 This is the very embodiment of the sunk-cost bias.
Status Quo Bias
Are you an organ donor? I am, but in my state (California) I had to punch out a little tab and stick it on my driver’s license to indicate my preference, and this little requirement means that far fewer people in my state are organ donors compared to states where the default position is that you are an organ donor unless you punch out a little tab indicating that you do not wish to participate. This is an opt-in versus opt-out choice architecture design dilemma, and it is an example of the status quo bias, or the tendency to opt for whatever it is we are used to, that is, the status quo. We tend to prefer existing social, economic, and political arrangements over proposed alternatives, even sometimes at the expense of individual and collective self-interest. Other examples abound.
Economists William Samuelson and Richard Zeckhauser discovered that when people are offered a choice among four different financial investments with varying degrees of risk, they select one based upon how risk averse they are, and their choices range widely. But when people are told that an investment tool has been selected for them and that they then have the opportunity to switch to one of the other investments, 47 percent stayed with what they already had compared to the 32 percent who chose those particular investment opportunities when none were presented first as a default option.20 In the early 1990s, citizens in New Jersey and Pennsylvania were offered two options for their automobile insurance: a high-priced option that granted them the right to sue and a cheaper option that restricted their rights to sue. Corresponding options in each state were roughly equivalent. In New Jersey the default option was the more expensive one, that is, if you did nothing you were automatically given that choice, and so 75 percent of citizens selected it. In Pennsylvania the default option was the cheaper one, and only 20 percent opted for the more expensive plan.21
Why does the status quo bias exist? Because the status quo represents what we already have (and have to give up in order to change), versus what we might have