New research by Professor Michael Mandler argues that while consumers do not have a
complete set of preferences about the goods they want to have or want to keep, neither do
their preferences change moment to moment. Rather, they have incomplete preferences. This
explains why they often stick to the ‘status quo’ – as in the classic case where people describe
the large amount of money they would have to be paid for a slight decrease in environmental
quality and the small amount they would pay for a slight improvement.
Writing in the November 2004 issue of the Economic Journal, Mandler notes that economists’
understanding of consumer behaviour has long been in crisis. Behavioural economists in both
the laboratory and the field have shown that people do not have a single unchanging set of
rational preference judgements that rank any possible pair of alternatives. Instead, consumers
stick to the status quo, holding on to whatever goods they begin with unless offered a highly
advantageous alternative.
Faced with this evidence, behavioural economists have adopted theories that let preferences
shift through time; people then have separate preferences for each possible status quo.
Mandler argues that this new orthodoxy throws out the baby with the bath water. By letting
preferences change through time, no property of preferences can ever be checked against
empirical data and economists can never draw any conclusions about when consumers are
better or worse off. The advantages of earlier rationality-based theories are lost.
This study proposes an alternative that salvages the defensible core of rationality theory and
reconciles it with the evidence of ‘status quo maintenance’. The key is to drop the notion that
all consumer decisions are guided by preference judgements. Instead, consumers possess a
partial list of preference judgements that rank only some options as better or worse;
preferences are incomplete.
In Mandler’s account, when consumers face choices between options that their preferences do
not rank, they will stick to whatever option is the default or status quo. Outside observers
should infer that a consumer has an actual preference judgement only when they see the
consumer actively reject the status quo in favour of an alternative.
The prime advantage of this analysis is that the seemingly fickle choice patterns of an
individual observed at different points in time can be seen to be consistent with unified and
rational preferences – though those preferences must now be incomplete. In related work,
Mandler shows that if an individual’s incomplete preferences meet a minimum standard of
internal consistency, then status quo maintenance is never irrational; status quo maintainers
will never make trades that leave them with inferior final consumption bundles.
Mandler argues that incomplete preferences offer a convincing explanation of why status quo
maintenance is so prevalent. According to currently popular behavioural theories, no
connection is made between an individual’s choices at different times. Consequently observers
cannot evaluate if status quo maintenance (or any other behaviour pattern) is irrational and
hence if it is likely to disappear. But when a single incomplete preference ranking explains an
individual’s behaviour through time, economists can confirm that status quo maintenance is
rational and why it persists.
The study uses several real-world cases to illustrate status quo maintenance and uses simple
indifference curve diagrams to make its main theoretical points. Indifference curves that
appear to cross indicate why previous analysts have thought that they had no choice but to
dissociate the preferences of an individual at different point in time. Similar diagrams show
how status quo maintenance can be explained as the outcome of a single set of incomplete
preferences.
ENDS
Notes for editors: ‘Status Quo Maintenance Reconsidered: Changing or Incomplete
Preferences?’ by Michael Mandler is published in the November 2004 issue of the Economic
Journal.
Michael Mandler is Professor of Economics at Royal Holloway College, University of London.
For further information: contact Michael Mandler via email: M.Mandler@rhul.ac.uk; or RES
Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email:
romesh@compuserve.com).