Loss aversion

About: Loss aversion is a research topic. Over the lifetime, 2898 publications have been published within this topic receiving 115198 citations.

Loss Aversion and Competition in Vickrey Auctions: Money Ain't No Good

Abstract: A key prediction of expectations-based reference-dependent preferences and loss aversion in second-price (Vickrey) auctions with private values is that the number of bidders should affect bids in auctions for real objects but not in auctions with induced monetary values. We develop an experiment with a within-subject design aimed at testing this distinctive comparative statics prediction. Our results are consistent with expectations-based reference-dependent preferences and loss aversion. In real-object auctions, we find that subjects' bids are affected by the number of competitors and, on average, they decline with the intensity of competition. In induced-value auctions, instead, bids are unaffected by the intensity of competition. We also successfully replicate an experiment from Sprenger (2015) aimed at distinguishing expectations-based loss aversion from models of Disappointment Aversion. This provides additional evidence that our findings in the auction experiments are due to expectations-based loss aversion.

Forecast Errors in Undisclosed Management Sales Forecasts: The Disappearance of the Overoptimism Bias

Abstract: Previous empirical evidence which evaluated the accuracy of management earnings or sales forecasts consistently revealed these forecasts to be on average significantly overoptimistic. However, all studies analyzed forecasts from public disclosures, which are an important signal to investors and analysts and thus likely biased by strategic considerations. To disentagle, whether and to which extent strategic deception or cognitive biases are resposible for this overoptimism, the present study analyzes the accuracy of 6,276 undisclosed, company-internal sales forecasts, which German firms provided anonymously to the IAB Establishment Panel. Quite surprisingly, the study reveals the average forecast to be significantly overpessimistic. I propose that the non-existence of a general bias towards overoptimism is due to the lack of incentives to consciously overgloss future prospects in undisclosed forecasts and that overpessimism may be a consequence of loss aversion.

Loss Aversion? Not with Half-a-Million on the Table!

Abstract: In the television show Affari Tuoi a contestant is endowed with a sealed box containing anmonetary prize between one cent and half a million euros. In the course of the show the contestant is offered to exchange her box for another sealed box with the samendistribution of possible monetary prizes inside. This offers a unique natural laboratory for testing the predictions of expected utility theory versus prospect theory using lotteries with large stakes. While expected utility theory predicts that an individual is exactly indifferent between accepting and rejecting the exchange offer, prospect theory predictsnthat an individual should always reject the exchange offer due to the assumption of loss aversion. We find that the assumption of loss aversion is violated by 46 percent of all contestants in our recorded sample. Thus, contestants do not appear to be predominantly loss averse when dealing with lotteries involving large stakes.

Determinants of Individual Investors' Behaviors: Evidence from Tunisian Stock Market

Abstract: Recent studies on individual investors' have shown that they do not act in a rational manner. However, several behavioral factors influence their investment decisions in Stock Markets. The present study considers the theory of individual investors' irrationality and investigates into their behavior with regard to investment decisions. In this sphere, we attempt to find out whether some psychological as well as demographic factors affect Tunisian individual investors' behavior and then try to examine the factors that are more influencing than others. To achieve our aims, we used a survey approach and developed a questionnaire that included sixty three items dealing with six biases. Then, we conducted a descriptive and factorial analysis on the biases of the collected data. Therefore, results have indicated that the Tunisian investors' behaviors are subject to five behavioral biases: representativeness, herding attitude, loss aversion, mental accounting, and anchoring. Apart from these biases, when attempting to categorize Tunisian investors on the basis of demographic variables, we have also found that gender, age and experience have an interaction with behavioral financial factors in investment decisions.