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: Individuals with pathological anxiety demonstrate clear avoidance biases in their decision making, and the findings suggest that psychological interventions for anxiety should focus on reducing risk sensitivity rather than reducing sensitivity to negative outcomes per se.
103 citations
TL;DR: In this paper, the authors examine investor reactions to different definitions of gains and losses (i.e., overall wealth, paper gains, and realized capital gains) and investigate how gains in one category of wealth affect holdings in other categories (e.g., financial assets).
Abstract: We investigate the way investors react to prior gains/losses. We directly examine investor reactions to different definitions of gains and losses (i.e., overall wealth, paper gains and losses, and realized capital gains and losses) and investigate how gains and losses in one category of wealth (e.g., real estate) affect holdings in other categories (e.g., financial assets). We show that investors change their holdings of risky assets as a function of both financial and real estate gains. Prior gains increase risk-taking, while prior losses reduce it. To interpret our results, we consider and compare three alternative hypotheses of investor behavior: prospect theory, house money effect and standard utility theory with decreasing risk aversion. Our evidence fails to support loss aversion, pointing in the direction of the house money effect or standard utility theory. Investors consider wealth in its entirety, and risk-taking in financial markets is affected by gains/losses in overall wealth, financial wealth, and real estate wealth. Copyright Springer 2005
103 citations
TL;DR: This article developed a political economy model where loss aversion and reference dependence are important in shaping people's preferences over trade policy, and the policy implications of the augmented model differ in three ways: there is a region of compensating protection, where a decline in the world price leads to an offsetting increase in protection, such that a constant domestic price is maintained; protection following a single negative price shock will be persistent; and irrespective of the extent of lobbying, there will be a deviation from free trade that favors loss-making industries.
Abstract: We develop a political economy model where loss aversion and reference dependence are important in shaping people’s preferences over trade policy. The policy implications of the augmented model differ in three ways: there is a region of compensating protection, where a decline in the world price leads to an offsetting increase in protection, such that a constant domestic price is maintained; protection following a single negative price shock will be persistent; and irrespective of the extent of lobbying, there will be a deviation from free trade that favors loss-making industries. The augmented model explains protections of the US steel industry since 1980. (JEL F13, F14, L61)
103 citations
TL;DR: In this article, it was shown that concavity calibration has no general implication for expected utility theory and has problematic implications for all decision theories that involve concave transformations (utility or value functions) of positive money payoffs, which makes loss aversion irrelevant to the argument.
102 citations
TL;DR: In this article, three studies examined the predictions that losses would be perceived as more intensely negative than non-gains, and that non-losses would be more positive than gains.
102 citations