Interactive of Status Quo Bias and Sunk Costs from Behavioral Economics Perspective

Abstract

As a core irrational decision-making phenomenon in behavioral economics, status quo bias profoundly affects individual and social decision-making. This paper explores the similarities and differences between status quo bias and sunk costs and their applications in real-life scenarios through case studies and experimental research. It is found that both are driven by loss aversion, but sunk cost emphasizes the constraints of historical inputs on current decision-making, while status quo bias is maintained by the anchoring effect of potential loss avoidance and default options. Based on the case studies of brand loyalty, luxury consumption and investment choice experiments of Apple users, this paper suggests that enterprises can optimize status quo bias through enhanced user stickiness design, while individuals need to reduce irrational decision-making through risk assessment and long-term perspective. The study further points out the limitations of sunk cost theory in explaining dynamic decision-making scenarios. The sunk cost theory, which aims to explain that people's decisions are interfered with by past inputs, does not focus on the causes of the interference and the changeability of the intensity of the interference. For example, the personal preferences of the decision maker, the complexity of the decision-making environment, etc. HOWEVER, the status quo bias theory of behavioral economics is more dynamic and can further explain why these status quo decisions arise.