Overcoming Status Quo Bias in Government Demolitions: A Strategy for Success

I have a friend who works in the government and is responsible for demolitions. Every demolition is a headache because the compensation demands from the residents are always much higher than the actual value of the houses. You can feel that they are not intentionally asking for exorbitant amounts; they just don’t want to move. What to do?

To address the “what to do” question, we first need to understand the essence of the problem. One reason residents generally overvalue their houses is their reluctance to change the accustomed “status quo.” If you must bring about change, be prepared to incur additional costs to offset resistance to change. This psychological phenomenon of reluctance to change is called “status quo bias.”

In 1984, Kenneth conducted an experiment. He randomly distributed cups and candies to students. After a while, he told the students they could choose to exchange what they had with something they liked better. These items were distributed randomly, and there was no cost to exchange. However, 90% of the students chose not to exchange.

This experiment is interesting because, with random distribution, you cannot say that those who chose cups liked cups, and those who chose candies liked candies. While such preferences may exist, the fact that up to 90% chose not to exchange indicates that people generally resist changing the status quo. If you genuinely want to change the status quo, you must be willing to pay an additional cost.

So, how high is this “additional cost”?

Consider someone buying a used car, eyeing a BMW priced at $500,000. They love it but are only willing to offer $400,000. After some hesitation, the dealer agrees. The buyer is happy, pays for the car, and goes to get gas. The gas station owner also admires the car and offers $530,000, but the buyer decisively refuses.

Upon returning home, the buyer suddenly realizes that before the purchase, they believed the car was only worth $400,000. However, after getting it, they wouldn’t sell it for $530,000. They lost $130,000 just because they already owned the car and didn’t want to change. The cost of “status quo bias” for them was valued at $130,000.

Status Quo Bias

What is status quo bias? It’s a psychological phenomenon where individuals are unwilling to change even when changing the status quo is more advantageous.

So, what should my friend do? He can employ a “relocation strategy,” providing transitional housing for displaced residents and promising they can return to the original location after a few years. As people live in the new homes for some time, the existing status quo bias is broken, and a new one forms. The emotional attachment to the old house diminishes, and the new house becomes a home, making government demolition tasks easier to accomplish.

Residents initially demanded substantial funds to overcome their “status quo bias,” but the government ultimately overcame the old bias with a new “status quo bias.”

Application

How else can this “status quo bias” be used to address other “what to do” problems?

I sell high-end carpets for $100,000 each, and wealthy customers are hesitant to make a purchase. What to do? You can offer a trial service. “I believe you and this carpet are meant for each other. I’ll deliver the carpet to your home, lay it out, and you can use it for a week. If there’s no connection, I’ll send someone to take it back.” After a week, when you call again, many wealthy customers may indeed make a purchase. This “connection” is akin to “status quo bias,” and taking the carpet back would be like losing $200,000.

A friend asks to borrow $10,000, and I’m willing but afraid they won’t repay. What to do? Your concern is valid. After lending the money, due to “status quo bias,” they might gradually consider it their own and be unwilling to repay even when they have the means. When lending money, you can request monthly interest payments or installment repayments, reminding them continuously: this money isn’t theirs. This helps prevent the formation of “status quo bias,” reducing the probability of unpaid debts.

I sell video membership services, and convincing users is challenging. What to do? You can learn from telecommunications companies. When answering a call, say, “I’ve upgraded your bandwidth from 10M to 100M for free.” When they ask, “How long is it free?” Reply, “Three months. After three months, you can call to downgrade back to 10M.” Can you guess if, after three months, they can overcome “status quo bias” and make that call?

Key Takeaways

In conclusion, let’s summarize. Status quo bias is a psychological phenomenon where individuals are unwilling to change even when changing the status quo is more advantageous. Creating a “status quo,” increasing the cost of customer “change,” utilizing status quo bias, and resolving status quo bias are effective solutions to many business-related “what to do” problems.

We often say that something more valuable than “unattainable” or “lost” is “about to be lost.” I believe you now understand why.