Money, Well-Being, and Loss Aversion: Does an Income Loss Have a Greater Effect on Well-Being Than an Equivalent Income Gain?

Christopher J. Boyce, Alex M. Wood, James Banks, Andrew Clark and Gordon D. A. Brown
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Christopher J. Boyce: Behavioural Science Centre, Stirling Management School - University of Stirling, School of Psychological Sciences - University of Manchester [Manchester]
Alex M. Wood: Behavioural Science Centre, Stirling Management School - University of Stirling
James Banks: Institute for Fiscal Studies - University of Manchester [Manchester]
Gordon D. A. Brown: University of Warwick [Coventry]

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Abstract: Higher income is associated with greater well-being, but do income gains and losses affect well-being differently? Loss aversion, whereby losses loom larger than gains, is typically examined in relation to decisions about anticipated outcomes. Here, using subjective-well-being data from Germany (N = 28,723) and the United Kingdom (N = 20,570), we found that losses in income have a larger effect on well-being than equivalent income gains and that this effect is not explained by diminishing marginal benefits of income to well-being. Our findings show that loss aversion applies to experienced losses, challenging suggestions that loss aversion is only an affective-forecasting error. By failing to account for loss aversion, longitudinal studies of the relationship between income and well-being may have overestimated the positive effect of income on well-being. Moreover, societal well-being might best be served by small and stable income increases, even if such stability impairs long-term income growth.

Keywords: loss aversion; money; income; happiness; subjective well-being (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (73)

Published in Psychological Science, 2013, 24 (12), pp.2557-2562. ⟨10.1177/0956797613496436⟩

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Related works:
Working Paper: Money, Well-being and Loss Aversion: Does an Income Loss Have a Greater Effect on Well-being than an Equivalent Income Gain? (2014)
Working Paper: Money, well-being and loss aversion: does an income loss have a greater effect on well-being than an equivalent income gain? (2014)
Working Paper: Money, Well-Being, and Loss Aversion: Does an Income Loss Have a Greater Effect on Well-Being Than an Equivalent Income Gain? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00941907

DOI: 10.1177/0956797613496436

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