Exploring the Nature of Loss Aversion

Eric J. Johnson (), Simon Gächter and Andreas Herrmann ()
Additional contact information
Eric J. Johnson: Columbia University
Andreas Herrmann: University of St. Gallen

No 2015, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Loss aversion, the fact that losses have a greater impact than gains, is a fundamental property of behavioral accounts of choice. In this paper, we suggest four possible characterizations of the relative impact of losses and gains: (1) It could be a constant, such as the much cited value of 2, as in losses have twice the impact of gains. (2) It could be a systematic individual difference, with some individuals more or less loss aversion, (3) it could be a property of the attribute, or (4) a property of the different processes used to construct selling and buying prices. We examine the behavior of a large sample of auto buyers using an experiment which allows us to measure loss aversion, at the individual level for several different attributes. A set of hierarchical linear models shows that to understand loss aversion, one must consider the process used to construct prices. Interestingly, we show that knowledge of the attribute lowers loss aversion and that age and attribute importance increases loss aversion.

Keywords: reference-dependent preferences; consumer choice; loss aversion (search for similar items in EconPapers)
JEL-codes: C90 D11 M31 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2006-03
New Economics Papers: this item is included in nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published - revised version published as 'Moderating loss aversion: loss aversion has moderators, but reports of its death are greatly exaggerated' in: Journal of Consumer Psychology, 2020, 30 (3), 407-428

Downloads: (external link)
https://docs.iza.org/dp2015.pdf (application/pdf)

Related works:
Working Paper: Exploring the Nature of Loss Aversion (2006)
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: https://EconPapers.repec.org/RePEc:iza:izadps:dp2015

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().