Economics at your fingertips  

Heterogeneity in loss aversion: evidence from field elicitations

Thomas Sproul and Clayton P. Michaud

Agricultural Finance Review, 2017, vol. 77, issue 1, 196-216

Abstract: Purpose - Prospect theory is now widely accepted as the dominant model of choice under risk, but has not been fully incorporated into applied research because of uncertainty about how to include population-level parameter estimates. The purpose of this paper is to characterize heterogeneity across people to lay a foundation for future applied research. Design/methodology/approach - The paper uses elicitation data from field experiments in Vietnam to fit a finite Gaussian mixture model using the expectation maximization algorithm. Applied results are simulated for investment allocations under myopic loss aversion. Findings - The authors find that about 20 percent of the sample is classified as extremely loss averse, while the rest of the population is only mildly loss averse. This implies a bimodal distribution of loss aversion in the population. Research limitations/implications - The data set is only moderately sized: 181 subjects. Future research will be needed to extend these results out of sample, and to other regions. Originality/value - This paper provides empirical evidence that heterogeneity matters in prospect theory modeling. It highlights how policy makers might be misled by assuming that average prospect theory parameters are typical within the population.

Keywords: Loss aversion; Prospect theory; Heterogeneity; Gaussian mixture model; Behavioural economics; Expectation maximization; C38; G02 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... RePEc&WT.mc_id=RePEc (text/html)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
http://emeraldgroupp ... /journals.htm?id=afr

Access Statistics for this article

Agricultural Finance Review is currently edited by Professor Calum G. Turvey

More articles in Agricultural Finance Review from Emerald Group Publishing
Bibliographic data for series maintained by Virginia Chapman ().

Page updated 2020-02-19
Handle: RePEc:eme:afrpps:afr-05-2016-0045