Loss aversion

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

Data Dispersion in Economics(II) - Inevitability and Consequences of Restrictions

Abstract: This article reviews and improves the theorems of the existence of restrictions near the boundaries of finite numerical segments and of the probability scale in the presence of non-zero dispersion. The non-zero dispersion may be caused, for example, by the influence of observation noises. Applications of the theorems to experiments, which are typical of the utility theory, are briefly presented. Similar experiments may be associated with the old problems of utility theory, such as the underweighting of high and the overweighting of low probabilities, risk aversion, loss aversion, the Allais paradox, the equity premium puzzle, the "four-fold pattern" paradox, etc. It is shown that the restrictions as the consequences of the theorems should be taken into account in the explanation of such experiments. The restrictions may facilitate such explanations including explanations by utility models.

Loss Aversion and Foreign Policy Resolve

Abstract: This article draws upon recent findings from the field of neuroscience to explore how loss aversion affects foreign policy resolve. We theorize that U.S. policy makers are more resolute in pursuing preventive policies that seek to avoid losses than they are in pursuing promotive policies that seek to acquire new gains. To test our theory, we conduct the first large-n analysis of foreign policy hypotheses derived from the neuroscience of loss aversion using data from 100 cases of U.S.-initiated Section 301 trade disputes. The results provide strong support for the loss-aversion-based theory, revealing that American policy makers are willing to fight harder and hold out longer in trade disputes with preventive objectives than they are in cases with promotive ones. Our study demonstrates that hypotheses derived from neuroscientific findings can be tested using large-n techniques in study of foreign policy, revealing a new avenue of inquiry within the field.

Despairing Over Disparities: Explaining the Difference Between Willingness to Pay and Willingness to Accept

Abstract: This paper examines the three major explanations for the disparity between willingness-to-pay (WTP) and willingness-to-accept (WTA) observed in contingent value surveys and laboratory experiments: a belief that the results must be biased in some fashion, Hanemann's (1991) substitutes hypothesis, and the loss aversion model proposed by Tversky and Kahneman (1991). Starting from the assumption that individuals make utility maximizing choices, we develop structural equations that yield parametric tests of the hypotheses within a single, non-experimental framework. The approach is flexible enough to incorporate a variety of functional form and distributional assumptions and can be applied to either data from either open-ended bids or dichotomous choice questions. The usefulness of the approach is demonstrated using data from a survey that asked both WTP and WTA questions. The results provide weak support for loss aversion.

Deciding When to Quit: Reference-Dependence Over Slot Machine Outcomes

Abstract: We conduct tests for reference dependent loss aversion using slot machine gamblers' decisions on when to quit playing for a visit to a casino. Evidence for a lagged status-quo reference point is found in the aggregate, while endogenously determined reference points are found when conditioning on betting intensity choices. Significant deviations from the distributions implied by random quitting support the loss aversion and diminishing sensitivity hypotheses.