Too Much to Lose: The Influence of Emotional Attachment on Risk Aversion

2020 ◽  
Author(s):  
Andy Lisheng Chan
Keyword(s):  
Risk Aversion ◽  
Loss Aversion ◽  
Risk Averse ◽  
Emotional Attachment ◽  
Risk Seeking ◽  
Seeking Behavior ◽  
The Stability ◽  
Loss Frame ◽  
Gain Frame ◽  
Mean Risk

Current literature suggests that the generalizability of the loss aversion hypothesis and in tandem risk aversion and framing effects may be less stable than previously specified. Hence, the current study seeks to investigate emotional attachment as a potential moderator of loss and subsequently risk aversion, helping inform both fields of economics and psychology in driving better policy and decision-making. 64 Temasek Polytechnic students, aged 16-23, were manipulated with either high or low emotional attachment towards an item and presented with an adapted Asian Disease Paradigm (Tversky & Kahneman, 1981) in either a gain or loss frame as a measure of the individual’s mean risk rating. ANOVA analysis revealed the stability of the loss aversion hypothesis identified in past literature – risk-averse behavior increased when a gain frame was presented, and risk-seeking behavior increased when a loss frame was presented. Critically, emotional attachment was found to moderate loss and risk aversion, validating past theoretical derivations (Ariely, Huber, & Wertenbroch, 2005; Novemsky & Kahneman, 2005): when emotional attachment was higher towards an item, participants displayed more risk-seeking behavior and more risk-averse behavior when in the context of losses and gains respectively, and displayed less risk-seeking and risk-averse behavior when they were less emotionally attached to an item in the same context of a gamble. Theoretical and practical implications of these findings are discussed in the context of nudging.

Nitrogen-Fixing Winter Cover Crops and Production Risk: A Case Study for No-Tillage Corn

1998 ◽  
Vol 30 (1) ◽  
pp. 163-174 ◽  
Author(s):  
James A. Larson ◽  
Roland K. Roberts ◽  
Donald D. Tyler ◽  
Bob N. Duck ◽  
Stephen P. Slinsky
Keyword(s):  
Cover Crops ◽  
Stochastic Dominance ◽  
Nitrogen Fertilization ◽  
Risk Averse ◽  
Production Risk ◽  
Risk Seeking ◽  
Wide Range ◽  
Seeking Behavior ◽  
Net Revenue ◽  
Applied Nitrogen

AbstractWinter legumes can substitute for applied nitrogen fertilization of corn. Stochastic dominance was used to order net revenues from legume and applied nitrogen alternatives. Stochastic dominance orderings indicate that systems combining vetch with low applied nitrogen fertilization (50 and 100 pounds/acre, respectively) were risk inefficient. By contrast, vetch and 150 pounds/acre applied nitrogen maximized expected net revenue and was risk efficient for a wide range of risk-averse and risk-seeking behavior. Farmers with these risk attitudes may not reduce applied nitrogen if they switch to a vetch cover. Extremely risk-averse or risk-seeking farmers would not prefer winter legumes.

STOCHASTIC DOMINANCE AND BEHAVIOR TOWARDS RISK: THE MARKET FOR ISHARES

2012 ◽  
Vol 07 (01) ◽  
pp. 1250005 ◽  
Author(s):  
DOMINIC GASBARRO ◽  
WING-KEUNG WONG ◽  
J. KENTON ZUMWALT
Keyword(s):  
Stochastic Dominance ◽  
Utility Functions ◽  
Investor Behavior ◽  
Risk Averse ◽  
Risk Seeking ◽  
Bull Markets ◽  
Seeking Behavior ◽  
Return Distributions ◽  
And Behavior ◽  
Positive Return

Prospect theory suggests that risk seeking can occur when investors face losses and thus an S-shaped utility function can be useful in explaining investor behavior. Using stochastic dominance procedures, Post and Levy (2015) find evidence of reverse S-shaped utility functions. This is consistent with investors exhibiting risk-seeking tendencies in bull markets and risk aversion in bear markets. We use both ascending and descending stochastic dominance procedures to test for risk-averse and risk-seeking behavior. By partitioning iShares' return distributions into negative and positive return regions, we find evidence of all four utility functions: concave, convex, S-shaped and reverse S-shaped.

Responsibility, Guilt, and Decision under Risk

2003 ◽  
Vol 93 (3_suppl) ◽  
pp. 1077-1079 ◽  
Author(s):  
Francesco Mancini ◽  
Amelia Gangemi
Keyword(s):  
Risk Aversion ◽  
Decision Problem ◽  
Important Determinant ◽  
Framing Effect ◽  
Moral Values ◽  
Risk Averse ◽  
Decision Under Risk ◽  
Risk Seeking ◽  
Gain Loss

We hypothesize that individuals' choices (risk-seeking/risk-aversion) depend on moral values and, in particular, on how subjects evaluate themselves as guilty or as victims of a wrong rather than on the descriptions of the outcomes as given in the options and evaluated accordingly as gains or losses (framing effect). People who evaluate themselves as victims are expected to show a risk-seeking preference (context of innocence). People who evaluate themselves as guilty are expected to show a risk-averse preference (context of guilt). Responses of 232 participants to a decision problem were compared in four different conditions involving two-story formats (innocence/guilt) and two-question-options formats (gain/loss). Regardless of the format of the question options, the story format appears to be an important determinant of individuals' preferences.

Security issuance and price impact under loss aversion

2017 ◽  
Vol 04 (02n03) ◽  
pp. 1750036 ◽  
Author(s):  
Weining Niu ◽  
Qingduo Zeng
Keyword(s):  
Numerical Simulation ◽  
Risk Aversion ◽  
Capital Structure ◽  
Loss Aversion ◽  
Price Impact ◽  
Positive Relation ◽  
Corporate Financing ◽  
Negative Relation ◽  
Risk Seeking ◽  
Financing Choice

The paper builds an equilibrium model to analyze the effect of risk aversion, risk seeking and loss aversion on corporate financing choice, capital structure and price impact. It shows that if the probability of a gain is higher than a certain level, risk aversion parameter has a positive relation with capital structure and price impact; while risk seeking parameter has a negative relation with capital structure and price impact, and vice versa. Loss aversion has negative relation with capital structure and price impact. The numerical simulation verifies our findings to some extent.

EXPRESS: Lay, professional, and artificial intelligence perspectives on risky medical decisions and COVID-19: How does the number of lives matter in clinical trials framed as gains versus losses?

2021 ◽  
pp. 174702182110520
Author(s):  
Sumitava Mukherjee ◽  
Divya Reji
Keyword(s):  
Artificial Intelligence ◽  
Clinical Trials ◽  
Risk Aversion ◽  
Risk Preferences ◽  
Medical Professionals ◽  
Medical Decisions ◽  
Risk Seeking ◽  
Intelligent Software ◽  
Number Of Patients ◽  
Loss Frame

Outcomes of clinical trials need to be communicated effectively to make decisions that save lives. We investigated whether framing can bias these decisions and if risk preferences shift depending on the number of patients. Hypothetical information about two medicines used in clinical trials having a sure or a risky outcome was presented in either a gain frame (people would be saved) or a loss frame (people would die). The number of patients who signed up for the clinical trials was manipulated in both frames in all the experiments. Using an unnamed disease, lay participants (experiment 1) and would-be medical professionals (experiment 2) were asked to choose which medicine they would have administered. For COVID-19, lay participants were asked which medicine should medical professionals (experiment 3), artificially intelligent software (experiment 4), and they themselves (experiment 5) favor to be administered. Broadly consistent with prospect theory, people were more risk-seeking in the loss frames than the gain frames. Risk-aversion in gain frames was sensitive to the number of lives with risk-neutrality at low magnitudes and risk-aversion at high magnitudes. In the loss frame, participants were mostly risk-seeking. This pattern was consistent across laypersons and medical professionals, further extended to preferences for choices that medical professionals and artificial intelligence programs should make in the context of COVID-19. These results underscore how medical decisions can be impacted by the number of lives at stake and reveal inconsistent risk preferences for clinical trials during a real pandemic.

Altered Risk-Aversion and Risk-Seeking Behavior in Bipolar Disorder

2009 ◽  
Vol 66 (9) ◽  
pp. 840-846 ◽  
Author(s):  
Rebecca A. Chandler ◽  
Judi Wakeley ◽  
Guy M. Goodwin ◽  
Robert D. Rogers
Keyword(s):  
Bipolar Disorder ◽  
Risk Aversion ◽  
Risk Seeking ◽  
Seeking Behavior

scholarly journals Performance measurement of investment companies with loss aversion in Tehran Stock Exchange

2015 ◽  
Vol 5 (3) ◽  
pp. 81-87 ◽  
Author(s):  
Shahabeddin Shams ◽  
Fatemeh Rezvani
Keyword(s):  
Risk Aversion ◽  
Prospect Theory ◽  
Correlation Coefficient ◽  
Loss Aversion ◽  
Stock Exchange ◽  
Portfolio Performance ◽  
Spearman Correlation ◽  
Risk Seeking ◽  
Investment Companies ◽  
Portfolio Return

This study measures the portfolio performance of listed investment companies in Tehran Stock Exchange (TSE) based on prospect theory. The criterion is measured by the ratio of gain to loss, to reflect risk-aversion in gains and risk-seeking in losses. The sample consists of 15 listed investment companies registered in TSE during 2003-2013. Research variables consist of portfolio return, market return, risk-free return, systematic risk, Treynor and Loss Aversion index. Hypotheses have been tested with Spearman correlation coefficient. The results show that Loss Aversion can be used as a new index for measuring portfolio performance.

scholarly journals The Deferral of Attacks: SP/A Theory as a Model of Terrorist Choice when Losses Are Inevitable

2018 ◽  
Vol 1 (1) ◽  
pp. 71-85 ◽  
Author(s):  
Peter J. Phillips ◽  
Gabriela Pohl
Keyword(s):  
Loss Aversion ◽  
Terrorist Group ◽  
Terrorist Attacks ◽  
Time Lags ◽  
Risk Averse ◽  
Aspiration Level ◽  
Risk Seeking ◽  
Starting Point ◽  
Expected Outcomes

Abstract When a terrorist group’s aspirations far exceed the outcomes that can be expected to result from any of the available attack methods, an outcome below the terrorist group’s aspiration level is inevitable. A primary prediction of SP/A theory when applied to the study of terrorist behaviour is that when losses are inevitable the terrorist group will be risk averse and inclined to defer further action until expected outcomes improve, new attack method innovations are developed or the memory of the event that shaped aspirations has faded sufficiently that the aspiration level can be ‘reset’. This complements existing predictions of loss aversion and risk seeking behaviour over the domain of avoidable losses and provides a starting point for developing explanations for patterns of behaviour that are observed in the terrorism context, including pauses in violence, even during brutality contests, and time-lags between terrorist attacks.

Sign in / Sign up

Export Citation Format

Share Document