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Reflections on gains and losses: A 2x2x7 experiment

Antoni Bosch-Domènech and Joaquim Silvestre

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We test whether risk attitudes change when losses instead of gains are involved. The study of gain-loss asymmetries has been largely confined to “reflected” choices, where all the money amounts of a positive prospect are multiplied by minus one. We define the decomposition “reflection = translation + probability switch,” and experimentally find both a translation effect (risk attraction becomes more frequent when gains are translated into losses) and a probability switch effect (risk attraction becomes more frequent when the probability of the best outcome decreases). Surprisingly, the switch effect is somewhat stronger than the translation effect, negating a conventional reflection effect when one starts with choices between gains with a low probability of the best outcome. We conclude by arguing that, while both the translation effect and the switch effect contradict the expected utility hypothesis, the translation effect implies a deeper violation of standard preference theory.

Keywords: Reflection effect; risk attraction; risk aversion; gains; losses; experiments; Leex (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2002-09, Revised 2005-02
New Economics Papers: this item is included in nep-exp and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

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Working Paper: Reflections on Gains and Losses: A 2x2x7 Experiment (2003) Downloads
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