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Loss aversion was popular in explaining many phenomena in traditional choice theory. In 1980, loss aversion was used in Thaler (1980) regarding endowment effect. [8] Loss aversion was also used to support the status quo bias in 1988, [9] and the equity premium puzzle in 1995. [10]
The correlation between the two theories is so high that the endowment effect is often seen as the presentation of loss aversion in a riskless setting. However, these claims have been disputed and other researchers claim that psychological inertia , [ 20 ] differences in reference prices relied on by buyers and sellers, [ 3 ] and ownership ...
Benartzi & Thaler (1995) contend that the equity premium puzzle can be explained by myopic loss aversion and their explanation is based on Kahneman and Tversky's prospect theory. [18] They rely on two assumptions about decision-making to support theory; loss aversion and mental accounting. [18]
A famous loss-aversion experiment is to offer a subject two options: They can either either receive something like $30 in guaranteed money — or a coin flip where they can receive either $100 or ...
Amos Nathan Tversky (Hebrew: עמוס טברסקי; March 16, 1937 – June 2, 1996) was an Israeli cognitive and mathematical psychologist and a key figure in the discovery of systematic human cognitive bias and handling of risk.
Loss Aversion: The Fear of Missing a Deal. Amazon. People hate losing something more than they love gaining something, which is why limited-time discounts work so well. Built off the same ...
In contrast, modern portfolio theory is based on a different axiom, called variance aversion, [27] and may recommend to invest into Y on the basis that it has lower variance. Maccheroni et al. [ 28 ] described choice theory which is the closest possible to the modern portfolio theory, while satisfying monotonicity axiom.
Status quo bias has been attributed to a combination of loss aversion and the endowment effect, two ideas relevant to prospect theory.An individual weighs the potential losses of switching from the status quo more heavily than the potential gains; this is due to the prospect theory value function being steeper in the loss domain. [1]