scholarly journals No Evidence of Loss Aversion Disappearance and Reversal in Walasek and Stewart (2015)

2021 ◽  
Author(s):  
Quentin André ◽  
Bart de Langhe
Keyword(s):  
Behavioral Economics ◽  
Measurement Invariance ◽  
Loss Aversion ◽  
Experimental Psychology ◽  
Sampling Theory ◽  
Utility Functions ◽  
Experimental Designs ◽  
Experimental Paradigm ◽  
P Loss ◽  
Gains And Losses

Loss aversion—the idea that losses loom larger than equivalent gains—is one of the most important ideas in Behavioral Economics. In an influential article published in the Journal of Experimental Psychology: General, Walasek and Stewart (2015) test an implication of decision by sampling theory: Loss aversion can disappear, and even reverse, depending on the distribution of gains and losses people have encountered. In this manuscript, we show that the pattern of results reported in Walasek and Stewart (2015) should not be taken as evidence that loss aversion can disappear and reverse, or that decision by sampling is the origin of loss aversion. It emerges because the estimates of loss aversion are computed on different lotteries in different conditions. In other words, the experimental paradigm violates measurement invariance, and is thus invalid. We show that analyzing only the subset of lotteries that are common across conditions eliminates the pattern of results. We note that other recently published articles use similar experimental designs, and we discuss general implications for empirical examinations of utility functions.

scholarly journals Gain-Loss Asymmetry in Delay and Effort Discounting of Different Amounts

2021 ◽  
Author(s):  
Szymon Bartłomiej Mizak ◽  
Paweł Ostaszewski ◽  
Przemysław Marcowski ◽  
Wojciech Białaszek
Keyword(s):  
Delay Discounting ◽  
Loss Aversion ◽  
Cognitive Effort ◽  
Physical Effort ◽  
P Loss ◽  
Effort Discounting ◽  
Gain Loss ◽  
Gains And Losses ◽  
Intertemporal Choices

Loss aversion entails the attribution of greater weight to losses than to equivalent gains. In terms of discounting, it is reflected in a higher rate for gains than for losses. Research on delay discounting indicates that such gain-loss asymmetry may depend on the amount of the outcome. In the current study, we address the question of how gains and losses are discounted in delay or effort conditions (physical or cognitive) across four outcome amounts. Our results replicate previous findings for intertemporal choices by showing that losses are discounted more slowly than gains, but only for smaller amounts, while there is no evidence of asymmetry in the evaluation for larger amounts. For physical effort discounting, we found an inverse asymmetry for the smallest amount tested (gains are discounted less steeply than losses), while such an effect is absent for larger amounts. Our results provide no support for the asymmetric evaluation of gains and losses for cognitive effort. Overall, our findings indicate that loss aversion may not be as pervasive as one might expect, at least when decisions are effort-based.

scholarly journals Loss aversion does disappear and reverse, although estimates of lambda (λ) are not reliable: Reply to André and De Langhe

2020 ◽  
Author(s):  
Lukasz Walasek ◽  
Timothy L Mullett ◽  
Neil Stewart
Keyword(s):  
Prospect Theory ◽  
Measurement Invariance ◽  
Loss Aversion ◽  
Choice Data ◽  
General Issue ◽  
Choice Proportion ◽  
Choice Sets ◽  
The Common ◽  
Gains And Losses

Walasek and Stewart (2015) demonstrated that loss aversion estimated from fitting accept-reject choice data from a set of 50/50 gambles can be made to disappear or even reverse by manipulating the range of gains and losses experienced in different conditions. André and de Langhe (2020) critique this conclusion because in estimating loss aversion on different choice sets, Walasek and Stewart (2015) have violated measurement invariance. They show, and we agree, that when loss aversion is estimated on the choices common to all conditions there is no difference in prospect theory’s λ parameter. But there are two problems here. First, while there are no differences in λs across conditions, there are very large differences in the proportion of the common gambles that are accepted, which André and de Langhe chose not to report. These choice proportion differences are consistent with decision by sampling (but are inconsistent with prospect theory or any of the alternative mechanisms proposed by André and de Langhe, 2020). Second, we demonstrate a much more general issue related to the issue of measurement invariance: that λ estimated from the accept-reject choices is extremely unreliable and does not generalise even across random splits within large, balanced choice sets. It is therefore not possible to determine whether differences in choice proportions are due to loss aversion or to a bias in accepting or rejecting mixed gambles. We conclude that context has large effects on the acceptance of mixed gambles and that it is futile to estimate λ from accept-reject choices.

scholarly journals No group differences in Traditional Economics Measures of loss aversion and framing effects in bipolar I disorder

PLoS ONE ◽  
2021 ◽  
Vol 16 (11) ◽  
pp. e0258360
Author(s):  
Zachary Anderson ◽  
Kim Fairley ◽  
Cynthia M. Villanueva ◽  
R. McKell Carter ◽  
June Gruber
Keyword(s):  
Decision Making ◽  
Behavioral Economics ◽  
Loss Aversion ◽  
Framing Effects ◽  
Group Differences ◽  
Future Research ◽  
Bipolar I Disorder ◽  
Decision Making Processes ◽  
Gains And Losses ◽  
Survey Approach

Bipolar disorder (BD) is associated with impaired decision making, yet few studies have adopted paradigms from behavioral economics to decompose which, if any, aspects of decision making may be impacted. This may be particularly relevant for decision-making processes relevant to known difficulties with emotive dysfunction and corresponding reward dysregulation in BD. Participants with bipolar I disorder (BD; n = 44) and non-psychiatric healthy controls (CTL; n = 28) completed three well-validated behavioral economics decision making tasks via a remote-based survey, including loss aversion and framing effects, that examined sensitivity to probabilities and potential gains and losses in monetary and non-monetary domains. Consistent with past work, we found evidence of moderate loss aversion and framing effects across all participants. No group differences were found in any of the measures of loss aversion or framing effects. We report no group differences between bipolar and non-psychiatric groups with respect to loss aversion and framing effects using a remote-based survey approach. These results provide a framework future studies to explore similar tasks in clinical populations and suggest the context and degree to which decision making is altered in BD may be rooted in a more complex cognitive mechanism that warrants future research.

scholarly journals Meta-Analysis of Empirical Estimates of Loss-Aversion

2020 ◽  
Author(s):  
Alexander L. Brown ◽  
Taisuke Imai ◽  
Ferdinand Vieider ◽  
Colin Camerer
Keyword(s):  
Behavioral Economics ◽  
Study Design ◽  
Loss Aversion ◽  
Large Scale ◽  
Meta Analysis ◽  
The Past ◽  
P Loss ◽  
Empirical Estimates ◽  
The Mean

Loss aversion is one of the most widely used concepts in behavioral economics. We conduct a large-scale interdisciplinary meta-analysis, to systematically accumulate knowledge from numerous empirical estimates of the loss aversion coefficient reported during the past couple of decades. We examine 607 empirical estimates of loss aversion from 150 articles in economics, psychology, neuroscience, and several other disciplines. Our analysis indicates that the mean loss aversion coefficient is between 1.8 and 2.1. We also document how reported estimates vary depending on the observable characteristics of the study design.

scholarly journals A regret-based route choice model with asymmetric preference in a stochastic network

2018 ◽  
Vol 10 (8) ◽  
pp. 168781401879323
Author(s):  
Lei Zhao ◽  
Hongzhi Guan ◽  
Xinjie Zhang ◽  
Xiongbin Wu
Keyword(s):  
Loss Aversion ◽  
Equilibrium Model ◽  
Choice Model ◽  
User Equilibrium ◽  
Stochastic User Equilibrium ◽  
Regret Minimization ◽  
Route Network ◽  
Travel Decision ◽  
Gains And Losses ◽  
Random Regret Minimization

In this study, a stochastic user equilibrium model on the modified random regret minimization is proposed by incorporating the asymmetric preference for gains and losses to describe its effects on the regret degree of travelers. Travelers are considered to be capable of perceiving the gains and losses of attributes separately when comparing between the alternatives. Compared to the stochastic user equilibrium model on the random regret minimization model, the potential difference of emotion experienced induced by the loss and gain in the equal size is jointly caused by the taste parameter and loss aversion of travelers in the proposed model. And travelers always tend to use the routes with the minimum perceived regret in the travel decision processes. In addition, the variational inequality problem of the stochastic user equilibrium model on the modified random regret minimization model is given, and the characteristics of its solution are discussed. A route-based solution algorithm is used to resolve the problem. Numerical results given by a three-route network show that the loss aversion produces a great impact on travelers’ choice decisions and the model can more flexibly capture the choice behavior than the existing models.

Nonconcave Utility Maximization with Portfolio Bounds

2021 ◽  
Author(s):  
Min Dai ◽  
Steven Kou ◽  
Shuaijie Qian ◽  
Xiangwei Wan
Keyword(s):  
Finite Difference ◽  
Behavioral Economics ◽  
Difference Scheme ◽  
Viscosity Solution ◽  
Finite Difference Scheme ◽  
Utility Maximization ◽  
Utility Functions ◽  
Value Functions ◽  
Incentive Schemes ◽  
Definition Of

The problems of nonconcave utility maximization appear in many areas of finance and economics, such as in behavioral economics, incentive schemes, aspiration utility, and goal-reaching problems. Existing literature solves these problems using the concavification principle. We provide a framework for solving nonconcave utility maximization problems, where the concavification principle may not hold, and the utility functions can be discontinuous. We find that adding portfolio bounds can offer distinct economic insights and implications consistent with existing empirical findings. Theoretically, by introducing a new definition of viscosity solution, we show that a monotone, stable, and consistent finite difference scheme converges to the value functions of the nonconcave utility maximization problems. This paper was accepted by Agostino Capponi, finance.

Adherence

2016 ◽  
Vol 5 (4) ◽  
pp. 41-53
Author(s):  
Michael Möcker ◽  
Klaus Mann
Keyword(s):  
Health Policy ◽  
Behavioral Economics ◽  
Loss Aversion ◽  
Ambiguity Aversion ◽  
Medical Advice ◽  
Libertarian Paternalism ◽  
Dynamic Inconsistency

Non-adherence to medical advice is a serious problem to patients, health policy and practitioners. This article outlines concepts of behavioral economics that might lead a patient to decide against the provider's recommendations and thus to be non-adherent. Especially the timing of pay-offs and dynamic inconsistency, their uncertainty and ambiguity aversion, loss-aversion and numerous heuristics like the peak-end-rule are discussed. The paper concludes with some hints on “libertarian” paternalism that may improve the situation.

scholarly journals Toward an Understanding of the Welfare Effects of Nudges: Evidence from a Field Experiment in the Workplace

2020 ◽  
Vol 130 (632) ◽  
pp. 2329-2353
Author(s):  
Erwin Bulte ◽  
John A List ◽  
Daan van Soest
Keyword(s):  
Field Experiment ◽  
Loss Aversion ◽  
Welfare Effects ◽  
Social Scientists ◽  
Welfare Costs ◽  
Gains And Losses ◽  
Commitment Device

Abstract Social scientists have recently explored how framing of gains and losses affects productivity. We conducted a field experiment in peri-urban Uganda, and compared output levels across 1,000 workers over isomorphic tasks and incentives, framed as either losses or gains. We find that loss aversion can be leveraged to increase the productivity of labour. The estimated welfare costs of using the loss contract are quite modest—perhaps because the loss contract is viewed as a (soft) commitment device.

Economists’ Odd Stand on the Positive–Normative Distinction

2014 ◽  
pp. 199-218 ◽  
Author(s):  
John B. Davis
Keyword(s):  
Social Identity ◽  
Behavioral Economics ◽  
Loss Aversion ◽  
Logical Positivism ◽  
Value Judgments ◽  
The Subject ◽  
Value Neutrality

This chapter examines economists’ indefensible attachment to the positive–normative distinction, and suggests a behavioral economics explanation of their behavior on the subject. It traces the origins of the distinction to Hume’s guillotine and logical positivism, and argues they contributed to Robbins’ understanding of value neutrality. It connects philosophers’ rejection of logical positivism and their rejection of the positive-normative distinction, explains and modifies Putnam’s view of fact–value entanglement, and identifies four main ethical value judgments that contemporary economists employ. The behavioral explanation of economists’ denial of these value judgments emphasizes loss aversion and economists’ social identity as economists.

Law’s Loss Aversion

2014 ◽  
pp. 267-299 ◽  
Author(s):  
Eyal Zamir
Keyword(s):  
Consumer Behavior ◽  
Behavioral Economics ◽  
Prospect Theory ◽  
Loss Aversion ◽  
Legal Theory ◽  
Burden Of Proof ◽  
Psychological Literature ◽  
The Law ◽  
Basic Features ◽  
Default Rules

Kahneman and Tversky’s prospect theory is probably the most influential contribution to behavioral economics, and loss aversion is the most important element of this theory: Losses loom larger than gains. This chapter surveys the effect this notion has had on legal theory. It first provides an overview of the vast psychological literature on loss aversion. It then demonstrates the contribution made by studies of loss aversion in several contexts that are of particular interest to the law, including consumer behavior and litigation and settlement. The chapter further discusses the possibility of triggering loss aversion through legal framing, focusing on two examples: default rules and burden of proof. It also suggests that there is a striking correspondence between loss aversion and basic features of the law, and offers possible explanations for this correspondence. Finally, the chapter briefly discusses some of the normative implications of loss aversion for the law.

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