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 authors show that reference points increase people's sensitivity to objective changes in value, while not being consistent with loss aversion, and that anchor points other than the status quo may serve as reference points and that people may use more than one reference point simultaneously.
41 citations
TL;DR: In this paper, a large-scale empirical analysis of 28.5 million trades made by 81.3 thousand traders of an online financial trading community over 28 months was conducted to explore the large scale empirical aspect of prospect theory.
Abstract: Prospect theory is widely viewed as the best available descriptive model of how people evaluate risk in experimental settings. According to prospect theory, people are typically risk-averse with respect to gains and risk-seeking with respect to losses, known as the “reflection effect”. People are much more sensitive to losses than to gains of the same magnitude, a phenomenon called “loss aversion”. Despite of the fact that prospect theory has been well developed in behavioral economics at the theoretical level, there exist very few large-scale empirical studies and most of the previous studies have been undertaken with micro-panel data. Here we analyze over 28.5 million trades made by 81.3 thousand traders of an online financial trading community over 28 months, aiming to explore the large-scale empirical aspect of prospect theory. By analyzing and comparing the behavior of winning and losing trades and traders, we find clear evidence of the reflection effect and the loss aversion phenomenon, which are essential in prospect theory. This work hence demonstrates an unprecedented large-scale empirical evidence of prospect theory, which has immediate implication in financial trading, e.g., developing new trading strategies by minimizing the impact of the reflection effect and the loss aversion phenomenon. Moreover, we introduce three novel behavioral metrics to differentiate winning and losing traders based on their historical trading behavior. This offers us potential opportunities to augment online social trading where traders are allowed to watch and follow the trading activities of others, by predicting potential winners based on their historical trading behavior.
41 citations
TL;DR: In this article, the authors look into heterogeneity in loss aversion in order to detect how dispersed loss aversion is in tourism and to observe whether different degrees of loss aversion can lead to the identification of loss-aversion-based segments.
Abstract: The objective of this article is to look into heterogeneity in loss aversion in order to detect how dispersed loss aversion is in tourism and to observe whether different degrees of loss aversion can lead to the identification of loss-aversion–based segments. Loss aversion is a prominent psychological human trait that causes asymmetric price reactions. Tourism literature has shown it is a critical characteristic with a significant, but heterogeneous, effect on tourist destination choice. However, so far no attempt has been made to look into loss aversion heterogeneity, and this article contributes to the literature by exploring, for the first time, the potential existence of groups of tourists that show differentiated asymmetric responses to price. The empirical application estimates the individual degree of loss aversion for each tourist, and detects five segments with different sensitivities. Relevant managerial implications are drawn in terms of implementing pricing strategies.
41 citations
TL;DR: The presentation of fearful faces, relative to the presentation of neutral faces, increased risk aversion-an effect that could be attributed to increased loss aversion, and is highlighted to highlight the sensitivity of loss aversion to the affective context.
Abstract: In many everyday decisions, people exhibit loss aversion-a greater sensitivity to losses relative to gains of equal size. Loss aversion is thought to be (at least partly) mediated by emotional--in particular, fear-related--processes. Decision research has shown that even incidental emotions, which are unrelated to the decision at hand, can influence decision making. The effect of incidental fear on loss aversion, however, is thus far unclear. In two studies, we experimentally investigated how incidental fear cues, presented during (Study 1) or before (Study 2) choices to accept or reject mixed gambles over real monetary stakes, influence monetary loss aversion. We find that the presentation of fearful faces, relative to the presentation of neutral faces, increased risk aversion-an effect that could be attributed to increased loss aversion. The size of this effect was moderated by psychopathic personality: Fearless dominance, in particular its interpersonal facet, but not self-centered impulsivity, attenuated the effect of incidental fear cues on loss aversion, consistent with reduced fear reactivity. Together, these results highlight the sensitivity of loss aversion to the affective context.
41 citations
TL;DR: The authors found that making decisions for others reduces loss aversion, thereby increasing risk taking on behalf of others, but not when making decisions both for one subject and another subject combined, and they also found a clear treatment effect when making decision for others but not for both subjects.
41 citations