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 analyze the effect of hotel attribute ratings on location and find that the assessment of location is influenced by the evaluation of other hotel attributes, in line with the loss aversion phenomenon (the consumer punishes the hotel more harshly for dissatisfaction than praises it lavishly for satisfaction).
44 citations
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TL;DR: In this article, the authors develop and test an equilibrium asset pricing model based on loss averse investors, which assumes rational expectations and is consistent with no-arbitrage pricing and assumes that investors demand a higher risk premium for risk associated with negative market returns than for positive market returns.
Abstract: I develop and test an equilibrium asset pricing model based on loss averse investors. The model specifies a pricing kernel that is a nonmonotonic function of the market return. It also implies that investors demand a higher risk premium for risk associated with negative market returns than for positive market returns. The model assumes rational expectations and is consistent with no-arbitrage pricing. Estimates of the model's parameters are similar to values reported elsewhere. As the loss aversion literature predicts, the accuracy of the model depends on the frequency with which data is observed. Consistent with Benartzi and Thaler (1995), the model explains annual returns better than competing models, but it does not explain monthly, quarterly, or half-year returns. The model fits both returns that reflect the equity premium and stock returns alone.
44 citations
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01 Jan 2014TL;DR: In this paper, the authors survey the literature in which risk preferences are measured and manipulated in laboratory and field experiments, and present a survey of the most commonly used measurement instruments: an investment task for allocations between a safe and risky asset, a choice menu task for eliciting probability indifference points, and a pricing task that elicits certainty equivalents of a lottery.
Abstract: This chapter surveys the rapidly growing literature in which risk preferences are measured and manipulated in laboratory and field experiments. The most commonly used measurement instruments are: an investment task for allocations between a safe and risky asset, a choice menu task for eliciting probability indifference points, and a pricing task for eliciting certainty equivalents of a lottery. These methods are compared in a manner that will help the practitioner decide which one to use, and how to deal with methodological issues associated with incentives, stakes, and the structure of choice menus. Applications involve using inferred risk preferences to document demographic effects, e.g. gender, and to explain the effects of risk aversion on observed behavior in economic in settings, e.g. bargaining, auctions, and contests. Some suggestions for evaluating the separate effects of utility curvature and probability weighting are provided.
44 citations
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TL;DR: It is found that consumers suffer from loss aversion on both prices and seats sold: consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references.
Abstract: We study the prevalence of multi-attribute loss aversion and reference effects in a revenue management setting based on data of individual level purchases over a series of concert performances. The reference dependence that drives consumer choice is not only based on the price but also on observed sales (as a fraction of the seating capacity) during their past visits. We find that consumers suffer from loss aversion on both prices and seats sold: consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references. We suggest pricing policies that can address consumer decisions driven by such reference dependence and loss aversion.
44 citations
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TL;DR: In this article, Tversky and Kahneman extended the notions of reference points and gain/loss asymmetry to multiattribute choice tasks having alternatives that cannot be assigned explicit probabilities.
44 citations