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: This paper developed a dynamic general equilibrium model where households' utility depends on consumption deviations from a reference level below which loss aversion is displayed, where state-dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption generate competing effects on output and inflation.
33 citations
TL;DR: This analysis reveals a threshold policy on the firm’s ordering and pricing decisions while considering the impact of reference point effects and finds that as the level of optimism increases, the firms’ optimal ordering level decreases and optimal price increases.
33 citations
Patent•
15 May 2001
TL;DR: In this article, a method of managing indexed investment products via a computer network includes the step of generating a set of portfolios, each portfolio composed of weighted classes of assets and associated with a degree of loss aversion.
Abstract: A method of managing indexed investment products via a computer network includes the step of generating a set of portfolios, each portfolio composed of weighted classes of assets and associated with a degree of loss aversion. The set of portfolios are stored in a database. A set of return distributions are generated for each portfolio for selected investment options and horizon dates and stored in a database. A selected portfolio is matched with an online investor in response to degree of loss aversion information input from the online investor. The online investor is then provided a return distribution associated with the selected portfolio in response to investment option and horizon date information input from the online investor.
33 citations
TL;DR: This paper found that workers were 25 percent more likely to accept penalty contracts, with no evidence of adverse or advantageous selection, and that penalty contracts also increased performance on the job by 0.2 standard deviations.
Abstract: Empirically, labor contracts that financially penalize failure induce higher effort provision than economically identical contracts presented as paying a bonus for success, an effect attributed to loss aversion. This is puzzling, as penalties are infrequently used in practice. The most obvious explanation is selection: loss averse agents are unwilling to accept such contracts. I formalize this intuition, then run an experiment to test it. Surprisingly, I find that workers were 25 percent more likely to accept penalty contracts, with no evidence of adverse or advantageous selection. Consistent with the existing literature, penalty contracts also increased performance on the job by 0.2 standard deviations. I outline extensions to the basic theory that are consistent with the main results, but argue that more research is needed on the long-term effects of penalty contracts if we want to understand why firms seem unwilling to use them.
33 citations
TL;DR: In this paper, the authors performed several tests of decision analysis applied to the health domain and found that utility is universally concave for the health outcomes used in this study, in contrast to the commonly found S-shaped utility for monetary outcomes, with concave utility for gains and convex utility for losses.
32 citations