Loss aversion

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

Heightened aversion to risk and loss in depressed patients with a suicide attempt history

Abstract: Suicide attempters have been found to be impaired in decision-making; however, their specific biases in evaluating uncertain outcomes remain unclear. Here we tested the hypothesis that suicidal behavior is associated with heightened aversion to risk and loss, which might produce negative predictions about uncertain future events. Forty-five depressed patients with a suicide attempt history, 47 nonsuicidal depressed patients, and 75 healthy controls participated in monetary decision-making tasks assessing risk and loss aversion. Suicide attempters compared with the other groups exhibited greater aversion to both risk and loss during gambles involving potential loss. Risk and loss aversion correlated with each other in the depressed patients, suggesting that a common pathophysiological mechanism underlies these biases. In addition, emotion regulation via suppression, a detrimental emotional control strategy, was positively correlated with loss aversion in the depressed patients, also implicating impairment in regulatory processes. A preliminary fMRI study also found disrupted neural responses to potential gains and losses in the subgenual anterior cingulate cortex, insula cortex, and left amygdala, brain regions involved in valuation, emotion reactivity, and emotion regulation. The findings thus implicate heightened negative valuation in decision-making under risk, and impaired emotion regulation in depressed patients with a history of suicide attempts.

The Origin of Behavior

Abstract: We propose a single evolutionary explanation for the origin of several behaviors that have been observed in organisms ranging from ants to human subjects, including risk-sensitive foraging, risk aversion, loss aversion, probability matching, randomization, and diversification. Given an initial population of individuals, each assigned a purely arbitrary behavior with respect to a binary choice problem, and assuming that offspring behave identically to their parents, only those behaviors linked to reproductive success will survive, and less reproductively successful behaviors will disappear at exponential rates. When the uncertainty in reproductive success is systematic, natural selection yields behaviors that may be individually sub-optimal but are optimal from the population perspective; when reproductive uncertainty is idiosyncratic, the individual and population perspectives coincide. This framework generates a surprisingly rich set of behaviors, and the simplicity and generality of our model suggest that these derived behaviors are primitive and nearly universal within and across species.

Initial Ownership in Bargaining: Introducing the Giving, Splitting, and Taking Ultimatum Bargaining Game:

Abstract: In three experiments, the authors studied the role of initial ownership of property in bargaining behavior. For this purpose, they created three new variations of the Ultimatum Bargaining Game (UBG): giving, splitting, and taking UBGs. On the basis of insights of loss aversion and the do-no-harm principle, the authors predicted and found that allocations to the recipient were highest in the taking UBG and lowest in the giving UBG. Additional measures to study the underlying mechanism of this effect indicate that the game type effect was mediated by perceptions of entitlement, which allocators did not want to infringe on. Moreover, the effect was not affected by strategic options as provided by deception or power.

Asset allocation under loss aversion and minimum performance constraint in a DC pension plan with inflation risk

Abstract: In this paper we investigate an optimal investment strategy for a defined-contribution (DC) pension plan member who is loss averse, pays close attention to inflation and longevity risks and requires a minimum performance at retirement. The member aims to maximize the expected S-shaped utility from the terminal wealth exceeding the minimum performance by investing her wealth in a financial market consisting of an indexed bond, a stock and a risk-free asset. We derive the optimal investment strategy in closed-form using the martingale approach. Our theoretical and numerical results reveal that the wealth proportion invested in each risky asset has a V-shaped pattern in the reference point level, while it always increases in the rising lifespan; with a positive correlation between salary and inflation risks, the presence of salary decreases the member’s investment in risky assets; the minimum performance helps to hedge the longevity risk by increasing her investment in risky assets.

Policy Bundling to Overcome Loss Aversion: A Method for Improving Legislative Outcomes

Abstract: Policies that would create net benefits for society but would also involve costs frequently lack the necessary support to be enacted because losses loom larger than gains psychologically. To reduce this harmful consequence of loss aversion, we propose a new type of policy bundling technique in which related bills that have both costs and benefits are combined. Using a laboratory study, we confirm across a set of four legislative domains that this bundling technique increases support for bills that have both costs and benefits. We also demonstrate that this effect is due to changes in the psychology of decision making, rather than voters’ willingness to compromise and support a bill they weakly oppose when that bill is bundled with one they strongly support.