Sticking To The Status Quo: A New Perspective On Consumer Behaviour
08 Nov 2004
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.
''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.