Loss Aversion

Pavlo R. Blavatskyy

No 375, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: Loss aversion is traditionally defined in the context of lotteries over monetary payoffs. This paper extends the notion of loss aversion to a more general setup where outcomes (consequences) may not be measurable in monetary terms and people may have fuzzy preferences over lotteries, i.e. they may choose in a probabilistic manner. The implications of loss aversion are discussed for expected utility theory and rankdependent utility theory as well as for popular models of probabilistic choice such as the constant error/tremble model and a strong utility model (that includes the Fechner model of random errors and Luce choice model as special cases).

Keywords: Loss aversion; more loss averse than; nonmonetary outcomes; probabilistic choice; rank-dependent utility theory (search for similar items in EconPapers)
JEL-codes: D00 D80 D81 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-cba, nep-cbe and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:375

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