Loss Aversion Is an Affective Forecasting Error

Abstract We test the proposition that investors’ ability to cope with financial losses is much better than they expect. In a panel survey of investors from a large bank in the UK, we ask for their subjective ratings of anticipated returns and experienced returns. The time period covered by the panel (2008–10) is one where investors experienced frequent losses and gains in their portfolios. This period offers a unique setting to evaluate investors’ hedonic experiences. We examine how the subjective ratings behave relative to expected portfolio returns and experienced portfolio returns. Loss aversion is strong for anticipated outcomes; investors are twice as sensitive to negative expected returns as to positive expected returns. However, when evaluating experienced returns, the effect diminishes by more than half and is well below commonly found loss aversion coefficients. This suggests that a large part of investors’ financial loss aversion results from an affective forecasting error.

Download Full-text

Affective forecasting error in exercise: Differences between physically active and inactive individuals.

Sport Exercise and Performance Psychology ◽

10.1037/spy0000006 ◽

2014 ◽

Vol 3 (3) ◽

pp. 177-183 ◽

Cited By ~ 8

Author(s):

Valerie G. Loehr ◽

Austin S. Baldwin

Keyword(s):

Affective Forecasting ◽

Physically Active ◽

Forecasting Error

Download Full-text

When idols look into the future: Fair treatment modulates the affective forecasting error in talent show candidates

British Journal of Social Psychology ◽

10.1111/bjso.12063 ◽

2014 ◽

Vol 54 (1) ◽

pp. 19-36 ◽

Cited By ~ 1

Author(s):

Marjolein Feys ◽

Frederik Anseel

Keyword(s):

Affective Forecasting ◽

Fair Treatment ◽

Forecasting Error ◽

The Future

Download Full-text

Underappreciated Benefits of Reading Own and Others' Memories

Social Cognition ◽

10.1521/soco.2021.39.4.504 ◽

2021 ◽

Vol 39 (4) ◽

pp. 504-525

Author(s):

Shriya Sekhsaria ◽

Emily Pronin

Keyword(s):

College Students ◽

Assisted Living ◽

Well Being ◽

Affective Forecasting ◽

Assisted Living Facilities ◽

Psychological Well Being ◽

Online Study ◽

Forecasting Error

These studies investigate underappreciated benefits of reading memories, including memories of other people, for happiness, psychological well-being, and loneliness. In the studies, college students (Study 1), residents of assisted-living facilities (Study 2), and MTurk workers online (Study 3) wrote down memories. They also predicted how they would feel after reading their own and others' memories at a later date. Then, later on, participants read memories that they or another participant had written. Individuals felt happier, less lonely, and higher in well-being after reading memories, regardless of whether those memories were their own or someone else's. Participants underpredicted the affect boost that they would gain from reading memories. This affective forecasting error was related to individuals' perceptions of the “mundaneness” of the memories, and the error was especially pronounced when individuals read others' memories rather than their own. Implications of reading memories for promoting well-being and reducing loneliness are discussed.

Download Full-text

How Badly Will I Feel if You Don't Like Me? Social Anxiety and Predictions of Future Affect

Journal of Social and Clinical Psychology ◽

10.1521/jscp.2019.38.3.245 ◽

2019 ◽

Vol 38 (3) ◽

pp. 245-275

Author(s):

Jeffrey J. Glenn ◽

Philip I. Chow ◽

Bethany A. Teachman

Keyword(s):

Social Anxiety ◽

Affective Forecasting ◽

Negative Evaluation ◽

Emotional States ◽

Social Evaluation ◽

Socially Anxious ◽

Forecasting Accuracy ◽

Forecasting Error ◽

Future Events ◽

To Receive

Introduction: The current study investigated whether high and low socially-anxious individuals would show differences in affective forecasting accuracy (i.e., the prediction of emotional states in response to future events) to positive versus negative social evaluation. Method: High (n = 94) and low (n = 98) socially-anxious participants gave a speech and were randomly assigned to receive a positive or negative evaluation. Results: For affective forecasts made proximally (moments before the speech), those low in social anxiety overpredicted their affect to a greater extent to a negative evaluation versus a positive evaluation. In contrast, those high in social anxiety overpredicted their affect to positive and negative evaluations comparably, and failed to adjust their prediction for a future hypothetical negative evaluation—in effect, not learning from their prior forecasting error. Discussion: Results suggest that affective forecasting biases deserve further study as a maintaining factor for social anxiety symptoms.

Download Full-text