Status quo bias in flexible spending account usage

摘要

I apply prospect theory to explain patterns of flexible spending account (FSA) utilization that suggest the presence of status quo bias. Using prospect theory as an alternative to expected utility maximization, I show that loss aversion with an endogenous, interior reference level provides a plausible explanation for low participation rates and state dependence. Using 17 years of data from a private benefits firm, I find that FSA participation rates have increased but remain surprisingly low. I estimate models of FSA participation and find significant evidence of state dependence, meaning that past FSA participation is an important determinant of future participation.