Topic
Loss aversion
About: Loss aversion is a research topic. Over the lifetime, 2898 publications have been published within this topic receiving 115198 citations.
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TL;DR: It is found that in a competitive environment, testosterone level increases significantly, leading to greater risk‐taking than in noncompetitive environment, and the importance of the endocrine system on financial decision‐making is underscored.
Abstract: We examine the relation between testosterone, cortisol, and financial decisions in a sample of naive investors. We find that testosterone level is positively related to excess risk-taking, whereas cortisol level is negatively related to excess risk-taking (correlation coefficient [r]: 0.75 and -0.21, respectively). Additionally, we find support for the dual-hormone hypothesis in a financial context. Specifically, the testosterone-to-cortisol ratio is significantly related to loss aversion. Individuals with a higher ratio are 3.4 times more likely to sell losing stocks (standard error [SE]: 1.63). Furthermore, we find a positive feedback loop between financial success, testosterone, and cortisol. Specifically, financial success is significantly related to higher post-trial testosterone and cortisol by a factor of 0.53 (SE: 0.14). Finally, we find that in a competitive environment, testosterone level increases significantly, leading to greater risk-taking than in noncompetitive environment. Overall, this study underscores the importance of the endocrine system on financial decision-making. The results of this study are relevant to a broad audience, including investors looking to optimize financial performance, industry human resources, market regulators, and researchers.
37 citations
TL;DR: The results suggest that the individual degree of (neural) loss aversion represents a stable dimension of decision‐making, which reflects in specific metrics of intrinsic brain activity at rest possibly modulating cortical excitability at choice.
37 citations
TL;DR: In this article, an axiomatization of preference relations over these streams that includes preferences which do not satisfy temporal monotonicity, and which leads to a simple functional representation of these preferences is examined.
36 citations
TL;DR: In this article, a game theoretical approach was used to compare two finance schemes available to loss-averse retailers: loan and investment, and they found that both schemes bring additional value to the loss averse retailer and the capital-constrained supplier, providing a win-win situation.
36 citations
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TL;DR: In this article, a lexicographic loss aversion model was used to study pension design from a risk management point of view, and the results showed that all income groups are likely to benefit from a PAYGO system, even in the absence of any redistribution.
Abstract: This paper studies pension design from a risk management point of view using a lexicographic loss aversion model. Interest in this model stems from the fact that it explains income expansion paths of equity and total savings particularly well. I find that all income groups are likely to benefit from a PAYGO system, even in the absence of any redistribution. Optimal equity investments are close to zero for the two bottom income quintiles and increase sharply for higher incomes. The results are compared to optimal pension plans under HARA preferences. I find that a PAYGO system has higher value under loss aversion than in the HARA case. Moreover, equity shares correspond more closely to empirical observations.
36 citations