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Loss attention is consistent with several empirical findings in economics, finance, marketing, and decision making. Some of these effects have been previously attributed to loss aversion, but can be explained by a mere attention asymmetry between gains and losses.
When prospect theory was added to a previously existing model that was attempting to explain consumer behavior during auctions, out-of-sample predictions were shown to be more accurate than a corresponding expected utility model. Specifically, prospect theory was boiled down to certain elements: preference, loss aversion and probability weighting.
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 ...
Loss aversion is also what leads investors to hold on to underperforming investments longer than they’re useful, refusing to “cut their losses” and move on to a better prospect until they ...
Loss aversion, where the perceived disutility of giving up an object is greater than the utility associated with acquiring it. [74] (see also Sunk cost fallacy) Pseudocertainty effect, the tendency to make risk-averse choices if the expected outcome is positive, but make risk-seeking choices to avoid negative outcomes. [75]
When a friend recently told me she wanted to invest more money in bonds, I was surprised. Not just because we rarely discuss specific investments. (I'm uncomfortable giving friends financial ...
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 ...