Definition
Status quo bias causes investors to leave portfolios unchanged even when rebalancing or reallocation would improve outcomes. The effort required to change and the risk of regret from a new decision that goes wrong create inertia. This manifests as keeping inherited positions, maintaining outdated allocations, and failing to exit positions where the investment thesis has changed.
lightbulb Example
An employee's 401(k) is still 100% in the company stock default option from 10 years ago—they never changed it despite company stock being highly risky. Status quo bias kept them from the simple action of diversifying.
verified_user Key Points
- Preference for inaction over action
- Default options disproportionately influence outcomes
- Leads to inertia in portfolio management
- Automatic features (rebalancing, TDFs) overcome this bias