Loss aversion

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

Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops

Abstract: Many subjects in lab experiments show considerable risk aversion in small-stakes gambles. This is counter to the predictions of expected utility theory for any reasonable degree of risk aversion but is consistent with loss aversion in prospect theory. In this paper, the authors show that acceptance of small risky gambles and scores on math tests is associated with inventory accumulation among Kenyan shopkeepers. More broadly, the authors argue that loss aversion may be one factor helping explain the broader puzzle of why high rates of return on capital among small firms in developing countries are not arbitraged away and do not lead to the high growth rates of consumption that the Euler equation will predict. The authors show that many Kenyan shopkeepers fail to make small inventory investments with high expected returns. In this paper, the authors examine the determinants of inventory investments and show that shopkeepers who invest one standard deviation more into a risky asset in a laboratory-style game have 10-16 percent larger inventories. Consistent with the view that math skills may be useful in debiasing, those with one - standard deviation higher math scores have 14-18 percent larger inventory levels.

Loss Aversion and Individual Characteristics

Abstract: Many studies have shown that loss aversion affects the valuation of non-market goods. Using stated choice data, this paper presents an empirical investigation of how individual-level loss aversion varies with observable personal characteristics and with the choice context. We investigate loss aversion with respect to travel time and money, and find significant loss aversion in both dimensions. The degree of loss aversion in the time dimension is larger than in the money dimension, and depends on age and education. Subjects tend to be more loss averse when the reference is well established.

The behavioral foundations of corporate dividend policy a cross-country analysis

Abstract: We study a model that relates dividend payout policy to behavioral issues based on the ideas of mental accounting. A panel analysis across 29 countries and over 43,000 firm-years demonstrates that our model studying the relation between dividends and patience, loss aversion, and ambiguity aversion can be verified empirically. Our paper seems to be the first that highlights empirically in a straightforward way the relevance of behavioral patterns as important determinants for corporate dividend policy, while previous empirical studies could tackle this issue only indirectly. With several robustness tests we also address potential doubts concerning the quality of our data and analyze further implications of our theory.

Loss aversion and status quo label bias

Abstract: Many factors contribute to status quo perseverance, some justifiable, some not. We focus on an advantage accruing to a policy from just calling it status quo, which is that the mere label makes it look better. When comparing pros and cons of competing policies, labeling one status quo sets it up as the reference point with respect to which pros and cons are potentially either losses or gains. Since “losses loom larger than gains,” pros one has weigh more than pros one does not, while the reverse holds for cons, thereby tilting the overall balance of pros and cons in favor of the policy designated as status quo. Direct evidence for this account is presented by showing that: (a) A policy's attractiveness increases when it is labeled status quo; (b) A policy's attractiveness is predictable from its pros and cons; and (c) The magnitude of status quo enhancement is predictable from a quantitative model that measures aversion to potential losses (accruing to having it replaced). Alternative processes, which may...