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: The authors modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Koszegi and Rabin (2006, 2007).
Abstract: We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Koszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully contingent contract. The logic is that, due to the stochastic reference point, increasing the number of different wages reduces the agent’s expected utility without providing strong additional incentives. Moreover, for diminutive occurrence probabilities for all signals the agent is rewarded with the fixed bonus if his performance exceeds a certain threshold.
16 citations
TL;DR: This is the first study showing that loss aversion is related to naturally occurring differences in dopamine function, and carriers of the genetic constellation 66Met+/A1+ had the lowest loss aversion scores, compared with all other allelic groups.
Abstract: Loss aversion is the tendency to overweight losses compared with gains in decision situations. Several studies have investigated the neurobiological background of this phenomenon and it was found that activation in the mesolimbic-mesocortical dopamine system during a gambling decision correlates with loss aversion. In a behavioral experiment with N = 143 subjects, the present study investigates the influence of 2 functional single-nucleotide polymorphisms on the BDNF gene (BDNF Val66Met polymorphism) and ANKK1 gene (DRD2 Taq1a/ANKK1 polymorphism), that are known to affect the dopamine system, on loss aversion. Additionally, associations of alexithymia, a personality construct describing the disability to consciously experience emotions in the self, with loss aversion and with the mentioned polymorphisms were assessed using the TAS-20 questionnaire, to replicate associations that have been reported before. Results revealed a significant interaction effect of the 2 polymorphisms on loss aversion. Carriers of the genetic constellation 66Met+/A1+ had the lowest loss aversion scores, compared with all other allelic groups. According to the literature this allelic configuration is characterized by a relatively low D2/3 receptor binding in the striatum and an impaired activity-dependent secretion of BDNF. This is the first study showing that loss aversion is related to naturally occurring differences in dopamine function.
16 citations
TL;DR: In this paper, a task-assignment model in which a principal assigns a task to one of two agents depending on future states is analyzed, and it is shown that if the agents are loss averse, a state-independent assignment is optimal even when the principal can write a contingent contract at no cost.
16 citations
TL;DR: This paper showed that neither liquidity constraints nor myopic consumers could generate the finding that consumption is sensitive only to expected income declines, suggesting that consumers have some kind of loss aversion preference, which could explain why the rejection of the life cycle hypothesis could be attributed to either liquidity constraints or Keynesian-type consumers.
Abstract: Several papers have put serious doubt on the validity of the life cycle-permanent income hypothesis. However, a few of them have focused on the reasons behind the failure. In this study, quarterly data from Brazil is used to check whether the rejection of the life cycle hypothesis could be attributed to the presence of either liquidity constraints or Keynesian-type consumers. The findings indicate that neither liquidity constraints nor myopic consumers could generate the finding that consumption is sensitive only to expected income declines. A possible explanation would be that consumers have some kind of loss aversion preference.
16 citations
TL;DR: In this article, the effect of market uncertainty and consumer rationality on product strategy when a company evaluates its entry into the green market is examined and a composite condition consisting of preference uncertainty, loss aversion, investment cost, and competition intensity is developed to guide companies to react either conservatively or aggressively.
Abstract: This study examines the effect of market uncertainty and consumer rationality on product strategy when a company evaluates its entry into the green market The risk in launching a green product is high because consumers may not be as environmentally conscious as they claim to be This study develops a composite condition consisting of preference uncertainty, loss aversion, investment cost, and competition intensity to guide companies to react either conservatively or aggressively An upgraded non-differentiation strategy is suggested for heterogeneous markets, loss-averse consumers, or high-quality reference when the indicator falls within the greenness range Unlike conventional competitive analysis for non-green products, differentiation may not always be the best option to benefit the entire society and non-differentiation to green is favorable in the context of our analysis
16 citations