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From this perspective, loss aversion prevents us from setting aspirations that are too high and unrealistic. If we set aspirations too high, loss aversion increases the subjective pain of failing to reach them. Loss aversion complements the existence of anticipatory utility, which encourages us not to set aspirations that are too low. [44]
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 ...
When it comes to money, it always helps to take a step back, acknowledge your emotions and weigh the risks and rewards. Hear an expert's take on 8 common mindsets that could be holding you back ...
Daniel Kahneman, who won the 2002 Nobel Memorial Prize in Economics for his work developing prospect theory. Prospect theory is a theory of behavioral economics, judgment and decision making that was developed by Daniel Kahneman and Amos Tversky in 1979. [1]
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 ]
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 ...
The greater the degree of loss aversion, the greater the gap between WTA and WTP. [ 2 ] A well-known example of this effect was documented by Ziv Carmon and Dan Ariely , who found that willingness to accept for tickets to a major basketball game was more than 10 times larger than the willingness to pay. [ 8 ]
Loss aversion is the principle that losses loom larger than gains. [17] It was introduced by the economics Nobel Prize winner Daniel Kahneman and Amos Tversky in a 1979 paper that is the most cited in economics and third most cited in psychology.