This lecture we're going to be talking about status quo bias.
Now what does this kind of school boys school says that we prefer staying in our current situation or
states rather than changing our situation or state.
So actually Google it let's put it up here is cool.
Status quo bias is an emotional bias a preference for the current state of affairs.
The current baseline or status quo.
Right and you've heard that before.
It's taken as a reference point and any change from that baseline is perceived as a loss.
So this is what the status quo bias says.
Now there's been a bunch of studies on it a bunch a bunch a bunch of signs and they've all proven that
we have this bias.
It is within us and you know that because you've probably felt that before where you don't like change.
You know that people dislike change it's hard for them to change.
They like being worder at and this is just the bias that's within us.
It is part of us humans to behave that way.
Now that being said how did they figure that out.
So in most studies what we've done is that the selected groups and we put them in a current situation
or they gave them a current product you know you know a mug or a pen or whatever it is and ask them
Would you like to change to that other product or that other situation.
And you realize that most of the time people wouldn't change they would stay with whatever situation
they were left in and then they took different groups and asked them to choose.
And I could I could basically say OK well if I took 100 people put 50 on Instagram and 50 on Facebook
and tell them well would you like to try this platform or remain where you're at.
Most of them will remain.
They're not going to change but if I had taken all 100 people and asked them to choose for themselves
it might be that 80 percent of people would go in a certain direction than the other.
And that's what the tests prove prove proved.
So they took a bunch of people ask them to do something and most people would choose something.
But then one day they decided for people.
People didn't change.
They would stay where they were placed and what they actually realized is that the more choices you
give people then the stronger the status quo bias becomes.
So it was only two choices then there is the likelihood that somebody says well you know what I prefer
and being.
Being there or having that product instead of this product.
But then if they have 20 50 different options then it becomes way harder for them to to to change and
they rather stay where they're at.
Right.
And the question was then why.
Why is it we behave that way.
Right.
Is it that we really like in our current situation.
We don't.
We love it we don't want anything else.
No reason why we like to remain in our current state is because we actually fear losing what we have.
We don't want to we don't want to give up having what we have.
Right.
So it comes back to loss aversion right.
It's another one of the biases we've looked at where when you lose something the perceived pain of that
loss is so big that you don't want to lose it so most people when you remain where they're at not because
they're fearful of going somewhere else but because they're fear fearful of losing what they currently
have.
Now in trading that affects us enormously great because you buy a stock and most people are going to
are going to want to remain in their stock and not deviate and not buy something else and just stay
in their position.
And it's understandable because you have you know 8000 thousand different options 8000 different stocks
and you can choose from.
So it becomes extremely hard for you to get out of that you know status quo.
So you can have somebody who buys a stock you know let's say a dispraise stock a job that person holds
that stock is not moving you know fluctuates.
And he's been holding it for months and months and months.
How would that make sense.
Why would you be in that stock when it hasn't been going your way when you have eight thousand different
stocks to choose from.
There's a bunch of other opportunities there.
You're just carrying dead money that way.
Right.
You have to jump out of this and jump into another one of them but not people are going to remain in
it because they think that soon enough it's going to turn around and it's going to make them money.
So it's not that they like the stock a lot.
It's just that they feel fearful of not being in it you know going out of it.
And then the stock goes up and then they're going to feel no pain and regrets and blame and all of these
emotions that they don't want to feel right.
So in order to avoid feeling these emotions.
Right.
What they do is they just stay in the stock.
They stay in the same position and they end up holding on for so long and not making money or even losing
money.
Right.
Just because they couldn't change or situations change the problem and just get out of this one get
into something else again.
It's not really.
Well I don't it's not their fault but it's human behavior right.
These are biases that exist do not exist and they've they're well documented you can read about them
and they affect us in a way that they make us behave that way.
Right they make us behave in a way where we'll hold something that's not going for us for months or
years instead of just saying OK well you know I was wrong.
Let me get on something else.
And you know not have NOT be affected so much by this.
You know
this bias and you know loss aversion as well as well and all of that.
So you have to be careful with it.
You have to realize that we all have this bias.
The status quo bias and that we're when we're in a certain situation or we have a certain product we
like to remain in that situation or with that product and we we have a hard time changing.
We have to push yourself know to get out of that zone get out of your comfort zone and be willing to
change what you have.
And one of the things that I told my friends to do is in their strategy and in your trading plan.
OK.
And again trading plan will do that in the next course.
They have to put a timeline on how long they can hold something.
Right.
Do you have a timeline on it so they could say my max holding period is going to be you know 10 days
or you know one months or whatever after that amount of time they have to get out of the position.
They have no choice they have to follow the rules.
They have to get out of their position.
And this rule is basically put there to kind of eliminate that bias.
Otherwise you're going to find yourself holding things for far too long and they're going to be missing
out on weight on with more opportunities than you know you risk losing in this one.
So that being said that should cover this bias again if you feel that you need to learn more about these
biases there's a bunch of articles and studies that are that have been written there about them.
So you can just Google them you'll find so much information about them.
And the more we read about them the more it makes sense to and the easier it is going to be for you
to actually break out of these vices.
So that being said I'll see you in the next section.