Reflections on gains and losses: A 2x2x7 experiment
Antoni Bosch-Domènech and
Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
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
Downloads: (external link)
https://econ-papers.upf.edu/papers/640.pdf Whole Paper (application/pdf)
Working Paper: Reflections on Gains and Losses: A 2x2x7 Experiment (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:640
Access Statistics for this paper
More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ().