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: In this paper, the authors conducted a randomized field experiment in a setting in which workers were free to choose their working times and their efforts during working time, and they found a large positive wage elasticity of overall labor supply and an even larger wage-elasticity of labor hours, which implies that the negative effort of effort per hour is negative.
Abstract: Most previous studies on intertemporal labor supply found very small or insignificant substitution effects. It is not clear, however, whether these results are due to institutional constraints on workers' labor supply choices or whether the behavioral assumptions of the standard life cycle model with time separable preferences are empirically invalid. We conducted a randomized field experiment in a setting in which workers were free to choose their working times and their efforts during working time. We document a large positive wage elasticity of overall labor supply and an even larger wage elasticity of labor hours, which implies that the wage elasticity of effort per hour is negative. While the standard life cycle model cannot explain the negative effort elasticity, we show that a modified neoclassical model with preference spillovers across periods and a model with reference dependent, loss averse preferences are consistent with the evidence. With the help of a further experiment we can show that only loss averse individuals exhibit a significantly negative effort response to the wage increase and that the degree of loss aversion predicts the size of the negative effort response.
178 citations
01 Jan 2009
TL;DR: This chapter highlights the behavioral and neuroscience work on the prospect theory and the neuroscience of behavioral decision-making and indicates that the demonstrations of neural correlates of several of the fundamental behavioral phenomena underlying prospect theory provide strong evidence that these anomalies are real.
Abstract: Publisher Summary This chapter highlights the behavioral and neuroscience work on the prospect theory and the neuroscience of behavioral decision-making. Several applications of prospect theory from neuroeconomics to decision analysis to behavioral finance require individual assessment of value and weighting functions. In order to measure the shape of the value and weighting functions exhibited by participants in the laboratory, one must first discuss how these functions can be formally modeled. The field of neuroeconomics is providing a rapidly increasing amount of data regarding the phenomena that lie at the heart of prospect theory, such as framing effects and loss aversion. It is clear that the demonstrations of neural correlates of several of the fundamental behavioral phenomena underlying prospect theory (loss aversion, framing effects, and probability weighting distortions) provide strong evidence to even the most entrenched rational choice theorists that these anomalies are real. The data have also started to provide more direct evidence regarding specific claims of the theory.
178 citations
TL;DR: In this paper, the authors present a way to both aid and understand consumers as they construct preferences for retirement income, which enables consumers to build desired probability distributions of wealth constrained by market forces and the amount invested.
Abstract: Investing for retirement is one of the most consequential yet daunting decisions consumers face. We present a way to both aid and understand consumers as they construct preferences for retirement income. The method enables consumers to build desired probability distributions of wealth constrained by market forces and the amount invested. We collect desired wealth distributions from a sample of working adults, provide evidence of the technique’s reliability and predictive validity, characterize individual- and cluster-level differences, and estimate parameters of risk aversion and loss aversion. We discuss how such an interactive method might help people construct more informed preferences.
174 citations
TL;DR: In this paper, two resource dilemmas, the commons dilemma, where individuals take from a common resource, and the public goods problem, in which individuals give to a common good, were experimentally compared.
173 citations
TL;DR: This work has found that for small outcomes, this pattern is reversed, and gains loom larger than losses, and the hedonic principle is explained on the basis of this reversal.
Abstract: Previous research has generally shown that people are loss averse; that is, they weigh losses more heavily than gains. In a series of three experiments, we found that for small outcomes, this pattern is reversed, and gains loom larger than losses. We explain this reversal on the basis of (a) the hedonic principle, which states that individuals are motivated to maximize pleasure and to minimize pain, and (b) the assumption that small losses are more easily discounted cognitively than large losses are.
173 citations