Status Quo Bias and the Number of Alternatives: An Empirical Illustration from the Mutual Fund Industry

CFR Working Paper No. 05-07

34 Pages Posted: 19 Oct 2005

See all articles by Alexander Kempf

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR)

Stefan Ruenzi

University of Mannheim - Department of International Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 2005

Abstract

We examine the extent of the Status Quo Bias (SQB) in a real-world repeated decision situation. Individuals who are subject to a SQB tend to choose an alternative that was chosen previously (i.e. their status quo), even if it is not the optimal choice any more. We examine the US equity mutual fund market and find strong evidence for the existence of a SQB in this market. Furthermore, the SQB is more severe in segments where there are more funds to choose from. Thereby, we deliver the first empirical confirmation of the experimental result of Samuelson and Zeckhauser (1988), that the SQB positively depends on the number of alternatives.

Keywords: Status Quo Bias, Mutual Funds, Number of Alternatives, Performance Flow Relationship

JEL Classification: G20, G23

Suggested Citation

Kempf, Alexander and Ruenzi, Stefan, Status Quo Bias and the Number of Alternatives: An Empirical Illustration from the Mutual Fund Industry (March 2005). CFR Working Paper No. 05-07, Available at SSRN: https://ssrn.com/abstract=820905 or http://dx.doi.org/10.2139/ssrn.820905

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR) ( email )

Cologne, 50923
Germany
+49 221 470 2714 (Phone)
+49 221 470 3992 (Fax)

Stefan Ruenzi (Contact Author)

University of Mannheim - Department of International Finance ( email )

L9, 1-2
Mannheim, 68131
Germany

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