In this lecture we're gonna be talking about status quo bias.
Now what is the status quo bias.
The status quo bias says that we prefer staying in our current situation or status rather than changing
our situation or state.
So if we actually Google it let's put it up here as core bias like 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 sense.
Now there's been a bunch of studies on it a bunch of bunch a bunch of studies and they've all proven
that we have this bias.
It is within us and you 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 where they're 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 figured that out so.
In most studies what they've done is that the selected groups and they put them in a current situation
or they gave them a current products.
You know 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 one hundred people put 50 on Instagram and 50 on
Facebook and told them Well would you like to choose platform or remain where you're at.
Most of them will remain but they're not going to change.
But if I had taken all 100 people and ask them to choose for themselves it might be that 80 percent
of people would go in a certain direction.
The other.
And that's what the tests prove.
Proof proved so difficult a bunch of people ask them to choose 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 if there was only two choices then there is the likelihood that somebody says Okay well you know
what.
I preferring 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 two to change and
they'd 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 you know our current situation.
We don't.
We love it.
We don't want anything else.
No the 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 vices 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 want to 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.
Right.
Because you buy a stock and most people are gonna are gonna want to remain in there that stock and not
deviate and not buy something else and just stay in their position.
And it's understandable because you have you know a thousand different options a thousand different
stocks you can 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 the stock you know let's say at this price.
Stock a job and that person holds its 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 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 no 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 this talk a lot.
It's just that they're 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 you know 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 end up holding it for
so long and not making money or even losing money right.
Just because they couldn't change their situations change the product and just get out of this one get
into something else again.
It's not really.
Well I don't know.
It's not their fault but it's human behavior right.
These are biases that exist in order to 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 or they make 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 not have not be affected so much by this.
You know
this bias and you know loss of Virgin is as well and all of that.
So you have to be careful what it is you have to realize that we all have this bias.
The status quo bias and that 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 so we have to push
yourself you 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 tell my traders to do is in their strategy and in their trading plan.
Okay.
And again trading plan we'll do that in the next course.
They have to put a timeline on how long they can hold something.
Right.
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 1 months or whatever.
After that amount of time they have to get out of their 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 you're gonna be missing
out on.
Wait on way more opportunities then you know your 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 you read about them the more ads to make sense to and the easier it is going to be for
you to actually break out of these biases.
So that being said I'll see you in the next lecture.