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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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Journal ArticleDOI
TL;DR: It is found that an increase in the diversity of consumers' tastes reduces equilibrium profits if consumer valuation is low but has the opposite effect if consumer valuations is high, and the robustness of the findings are assessed by extending the model in different directions.
Abstract: Products such as Nike running shoes, Gillette razors, and Gatorade sports drink serve as the standard against which consumers evaluate other members of the category. Empirical evidence suggests that consumers care about not only the consumption utility derived from a product, but also the gain-loss utility in comparison to the reference product of the category. This paper examines how reference-dependent utility affects price competition in a horizontally differentiated market where consumers' tastes are diverse. When consumer valuations are low, the reference product is priced lower than a nonreference product. In contrast, when consumer valuations are high, the reference product is priced higher than a nonreference product. Moreover, loss aversion on the price dimension always intensifies competition among low-valuation goods, whereas loss aversion on the taste dimension softens competition among high-valuation goods only if consumer sensitivity to the difference in match quality is above a threshold. We also find that an increase in the diversity of consumers' tastes reduces equilibrium profits if consumer valuation is low but has the opposite effect if consumer valuation is high. We further explore how an increase in the popularity of the reference product affects price competition. Finally, we assess the robustness of the findings by extending the model in different directions. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2834 . This paper was accepted by Juanjuan Zhang, marketing.

29 citations

Dissertation
27 Oct 2017
TL;DR: The behavioral model is used to design incentive systems for truthful information sharing and validate the approach in an experiment with out-of-sample treatments and out- of-sample subjects.
Abstract: In environments with uncertain demand, companies must rely on forecasts to plan and execute their internal supply processes. A phenomenon frequently observed in practice is that demand forecasts are systematically too high. One reason could be incentive systems that motivate employees in Marketing/Sales to maximize their sales volume. In this respect, inflated demand forecasts are a means to ensure sufficient inventory and to minimize the risk of shortages. The objective of this thesis is to design incentive systems that lead to accurate and unbiased demand forecasts. We motivate and contextualize our research question by the practical case of a company in the pharmaceutical industry. To analyze the results of the case study more systematically, we transfer the forecast information exchange into a game-theoretic model. In an environment with stochastic demand, a (better informed) Sales department sends a forecast to an Operations department. To incentivize truthful forecast information sharing, the incentive system of Sales contains a penalty for forecast errors. The utility functions are grounded in behavioral theories of mental accounting, loss aversion and lying aversion. We formalize the setting as a signaling game and derive the Pareto-dominant separating equilibria of the game. In laboratory experiments, we observe behavior that deviates substantially from expected-payoff-maximizing behavior in the directions predicted by our behavioral model. Based on our theory and estimates for the behavioral parameters of our model, we design forecast-error-based incentive systems for truthful forecast information sharing. We validate their effectiveness in a new experiment with out-of-sample treatments and out-of-sample subjects. We further confirm the robustness of our model by additional experiments and analyses.

29 citations

Journal ArticleDOI
TL;DR: Three experiments with monkeys and humans consistent with a reinterpretation of their data that attributes their results not to loss aversion, but to differences between choice alternatives in delay of reinforcement are presented.
Abstract: Chen, Lakshminarayanan, and Santos (2006) claim to show in three choice experiments that monkeys react rationally to price and wealth shocks, but, when faced with gambles, display hallmark, human-like biases that include loss aversion. We present three experiments with monkeys and humans consistent with a reinterpretation of their data that attributes their results not to loss aversion, but to differences between choice alternatives in delay of reinforcement.

29 citations

Posted Content
TL;DR: In this paper, the authors analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents and find that four structural parameters contribute to explaining choice behavior.
Abstract: We analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: Utility curvature, loss aversion, preferences towards the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behaviour. The structural parameters are significantly associated with socio-economic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.

28 citations

Journal ArticleDOI
TL;DR: It is suggested that pathological gambling was a heterogeneous disorder in terms of loss aversion, which means that a loss is subjectively felt to be larger than the same amount of gain, and might be useful for understanding cognitive and neurobiological mechanisms and the establishment of treatment strategies for PG.
Abstract: Pathological gambling (PG) is characterized by continual repeated gambling behavior despite negative consequences. PG is considered to be a disorder of altered decision-making under risk, and behavioral economics tools were utilized by studies on decision-making under risk. At the same time, PG was suggested to be a heterogeneous disorder in terms of personality traits as well as risk attitude. We aimed to examine the heterogeneity of PG in terms of loss aversion, which means that a loss is subjectively felt to be larger than the same amount of gain. Thirty-one male PG subjects and 26 male healthy control (HC) subjects underwent a behavioral economics task for estimation of loss aversion and personality traits assessment. Although loss aversion in PG subjects was not significantly different from that in HC subjects, distributions of loss aversion differed between PG and HC subjects. HC subjects were uniformly classified into three levels (low, middle, high) of loss aversion, whereas PG subjects were mostly classified into the two extremes, and few PG subjects were classified into the middle range. PG subjects with low and high loss aversion showed a significant difference in anxiety, excitement-seeking and craving intensity. Our study suggested that PG was a heterogeneous disorder in terms of loss aversion. This result might be useful for understanding cognitive and neurobiological mechanisms and the establishment of treatment strategies for PG.

28 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
2023105
2022178
2021178
2020184
2019189
2018197