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 endowment effect is among the best known findings in behavioral economics and has been used as evidence for theories of reference-dependent preferences and loss aversion as discussed by the authors, however, recent literature has questioned the robustness of the effect in the laboratory, as well as its relevance in the field.
Abstract: The endowment effect is among the best known findings in behavioral economics and has been used as evidence for theories of reference-dependent preferences and loss aversion. However, a recent literature has questioned the robustness of the effect in the laboratory, as well as its relevance in the field. In this review, we provide a summary of the evidence and describe recent theoretical developments that can potentially reconcile the different findings, with a focus on expectation-based reference points. We also survey recent work from psychology that provides either alternatives to or refinements of the usual loss-aversion explanation. We argue that loss aversion is still the leading paradigm for understanding the endowment effect, but given the rich psychology behind the effect, a version of the theory that encompasses multiple reference points may be required.
122 citations
TL;DR: The authors experimentally tested whether groups judge the same change differently depending on whether it represents a loss or gain, and discussed theoretical and political implications for progress toward a just society.
Abstract: White Americans tend to believe that there has been greater progress toward racial equality than do Black Americans. The authors explain this difference by combining insights from prospect theory and social dominance theory. According to prospect theory, changes seem greater when framed as losses rather than gains. Social dominance theory predicts that White Americans tend to view increases in equality as losses, whereas Black Americans view them as gains. In Studies 1 and 2, the authors experimentally tested whether groups judge the same change differently depending on whether it represents a loss or gain. In Studies 3-6, the authors used experimental methods to test whether White participants who frame equality-promoting changes as losses perceive greater progress toward racial equality. The authors discuss theoretical and political implications for progress toward a just society.
122 citations
TL;DR: The fear of a loss seems to lead to more dishonest behavior than the lure of a gain, and the level of cheating is by far higher in the loss frame than in the gain frame under no monitoring.
Abstract: Does the extent of cheating depend on a proper reference point? We use a real-effort matrix task that implements a two (gain versus loss frame) times two (monitored performance versus unmonitored performance) between-subjects design with 600 experimental participants to examine whether the extent of cheating is reference dependent. Self-reported performance in the unmonitored condition is significantly higher than actual performance in the monitored condition—a clear indication of cheating. However, the level of cheating is by far higher in the loss frame than in the gain frame under no monitoring. The fear of a loss seems to lead to more dishonest behavior than the lure of a gain. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2313. This paper was accepted by Uri Gneezy, behavioral economics.
122 citations
TL;DR: The authors empirically test if loss-aversion affects household participation in equity markets, household allocations to equity, and household allocations between mutual funds and individual stocks, and find that higher loss aversion is associated with a lower probability of participation.
Abstract: In this paper we empirically test if loss-aversion affects household participation in equity markets, household allocations to equity, and household allocations between mutual funds and individual stocks. Using household survey data, we obtain direct measures of each surveyed household’s loss-aversion coefficient from questions involving hypothetical payoffs. We find that higher loss-aversion is associated with a lower probability of participation. We also find that higher loss-aversion reduces the probability of direct stockholding by significantly more than the probability of owning mutual funds. After controlling for sample selection we do not find a relationship between loss-aversion and portfolio allocations to equity.
121 citations
TL;DR: A review of the evidence in support of loss aversion can be found in this article, where the upshot is that current evidence does not support that losses, on balance, tend to be any more impactful than gains.
121 citations