Prospect theory’s loss aversion is robust to stake size

Han Bleichrodt and Olivier L’haridon ()
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Olivier L’haridon: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: Several papers have challenged the robustness of loss aversion, claiming that it is context-dependent and disappears for small stakes. These papers use a behavioral definition of loss aversion that may be confounded by diminishing sensitivity and probability/event weighting under the new version of prospect theory (PT). We perform a new theory-based test of loss aversion that controls for these confounds. We found significant loss aversion for both small stakes and high stakes. The overall loss aversion coefficient varied between 1.25 and 1.45, less than commonly observed. Loss aversion decreased slightly for small stakes, but the effect was small and usually insignificant. Overall, our results indicate that, under PT, loss aversion is robust to stake size. © 2023, Society for Judgment and Decision making. All rights reserved.

Keywords: context dependence; loss aversion; measurement (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cbe and nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-04126663
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Published in Judgment and Decision Making, 2023, 18 (1), pp.e14. ⟨10.1017/jdm.2023.2⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04126663

DOI: 10.1017/jdm.2023.2

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