Consumer Rationality and the Status Quo

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Abstract
Received microeconomic theory presumes rational consumers maximize utility over all commodity bundles. Recent analysis, however, suggests that a consumer's status quo may limit economic rationality, “bias” consumer decisions, and induce serious errors in survey-based valuations of public and private goods. Using regression and choice-theoretic frameworks, we investigate the existence of status quo effects in the consumer valuation of a particular unpriced product—the reliability of residential electrical service. Such valuations have become important in electric utility resource planning and rate making. We find substantial status quo effects, which must be addressed in welfare comparisons regarding electric service reliability.

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