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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18 Apr 2015
TL;DR: Designs informed by the endowment effect and loss aversion theories and which communicated to savers the long-term implications of their asset allocation choices, led users to adjust their behavior, make larger and more frequent asset allocation changes, and achieve their saving goals more effectively.
Abstract: Can human-computer interaction help people make informed and effective decisions about their retirement savings? We applied the behavioral economic theories of endowment effect and loss aversion to the design of novel retirement saving user interfaces. To examine effectiveness, we conducted an experiment in which 487 participants were exposed to one of three experimental user interface designs of a retirement saving simulator, representing endowment effect, loss aversion and control. Users made 34 yearly asset allocation decisions. We found that designs informed by the endowment effect and loss aversion theories and which communicated to savers the long-term implications of their asset allocation choices, led users to adjust their behavior, make larger and more frequent asset allocation changes, and achieve their saving goals more effectively.
34 citations
TL;DR: In this paper, the authors examined the endowment effect in the evaluation of time in a series of five studies and found that subjects indicated that they should get a higher wage for doing household and academic chores for others than what they considered fair to pay to the same others for doing identical chores.
34 citations
TL;DR: In this paper, reference-dependent choice with a stochastic, state-dependent reference point was investigated and it was shown that the reference point generally includes an important exogenously fixed component.
Abstract: This study investigates reference-dependent choice with a stochastic, state-dependent reference point. The optimal reference-dependent solution equals the optimal consumption solution (no loss aversion) if the reference point is selected fully endogenously. Given that loss aversion is widespread, we conclude that the reference point generally includes an important exogenously fixed component. We develop a choice model in which adjustment costs can cause stickiness relative to an initial, exogenous reference point. Using historical U.S. investment benchmark data, we show that this model is consistent with diversification across bonds and stocks for a wide range of evaluation horizons, despite the historically high-risk premium of stocks compared to bonds.
This paper was accepted by Peter Wakker, decision analysis.
34 citations
TL;DR: In this paper, the authors report on the results of experiments where participants choose between entrepreneurship and an outside option, and show that participants endogenously sort themselves into entrepreneurial and safe types, and returns from the two paths converge.
Abstract: We report on the results of experiments where participants choose between entrepreneurship and an outside option. Entrepreneurs enter a market and then make investment decisions to capture value. Payoffs depend on both strategic risk (i.e., the investments of other entrepreneurs) and natural risk (i.e., luck). Absent natural risk, participants endogenously sort themselves into entrepreneurial and safe types, and returns from the two paths converge. Adding natural risk fundamentally changes these conclusions: Here we observe excessive entry and excessive investment so that entrepreneurs earn systematically less than the outside option. These payoff differences persist even after many repetitions of the task. With a risky outside option, entry further increases and about one-third of entrepreneurs adopt a passive strategy, investing little or nothing. Finally, we examine an environment where an individual must become an entrepreneur but chooses the stakes over which she will compete. Due to under-entry and under-investment in the high stakes setting, the returns gap grows to over 15 percentage points. A two-factor model incorporating loss aversion and love of winning can rationalize these returns patterns.
34 citations
TL;DR: In this paper, the authors examined the measurement of social welfare, poverty, and inequality, taking into account features that have been found to be important welfare determinants in behavioral economics, such as reference-dependence, loss aversion, and diminishing sensitivity.
Abstract: This paper examines the measurement of social welfare, poverty, and inequality, taking into account features that have been found to be important welfare determinants in behavioral economics. Most notably, we incorporate reference-dependence, loss aversion, and diminishing sensitivity—aspects emphasized in Prospect Theory—to social welfare measurement. We suggest a new notion of equivalent income, the income level with which the individual would be as well off, evaluated using a standard concave utility function, as he actually is, evaluated with a reference-dependent utility function. We examine the differences between standard poverty and inequality measures based on observed income and measures that are calculated based on equivalent income. These differences are illustrated using household-level panel data from Russia and Vietnam.
33 citations