On the Descriptive Value of Loss Aversion in Decisions under Risk

Eyal Ert () and Ido Erev ()
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Ido Erev: Faculty of Industrial Engineering and Management, Technion - Israel Institute of Technology.

No 10-056, Harvard Business School Working Papers from Harvard Business School

Abstract: Five studies are presented that explore the assertion that losses loom larger than gains. The first two studies reveal equal sensitivity to gains and losses. For example, half of the participants preferred the gamble "1000 with probability 0.5; -1000 otherwise" over "0 with certainty." Studies 3, 4, and 5 address the apparent discrepancy between these results and the evidence for loss aversion documented in previous research. The results reveal that only under very specific conditions does the pattern predicted by the loss aversion assertion emerge. This pattern does not emerge in short experiments or in the first 10 trials of long experiments. Nor does it emerge in long experiments with two-outcome symmetric gambles, or in long experiments with asymmetric multi-outcome gambles. The observed behavior, in these settings, reflects risk neutrality in choice among low-magnitude mixed gambles.

JEL-codes: C91 D01 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-01
New Economics Papers: this item is included in nep-bec, nep-cbe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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