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We estimate a structural model using data from a novel experiment investigating how investors’ preferred frequency of portfolio evaluations balance the opposing effects of ambiguity and loss aversion. Investors in the experiment face initial ambiguity concerning return distributions for an asset. They observe draws from the true return distribution of the asset, allowing them to reduce their ambiguity through time. We exploit portfolio choices and stated beliefs over possible return distributions to estimate preferences and ambiguity updating rules. We find that 70% of investors would opt for a high frequency of portfolio evaluations, reflecting the dominating effect of ambiguity aversion over loss aversion.

People are often reluctant to sell a house, or shares of stock, below the price at which they originally bought it. While this is generally not consistent with rational utility maximization, it does reflect two strong empirical regularities that are central to the behavioral science of human decision-making: a tendency to evaluate outcomes relative to a reference point determined by context (in this case the original purchase price), and the phenomenon of loss aversion in which people are particularly prone to avoid outcomes below the reference point. Here we explore the implications of reference points and loss aversion in optimal stopping problems, where people evaluate a sequence of options in one pass, either accepting the option and stopping the search or giving up on the option forever. The best option seen so far sets a reference point that shifts as the search progresses, and a biased decision-maker's utility incurs an additional penalty when they accept a later option that is below this reference point. We formulate and study a behaviorally well-motivated version of the optimal stopping problem that incorporates these notions of reference dependence and loss aversion. We obtain tight bounds on the performance of a biased agent in this model relative to the best option obtainable in retrospect (a type of prophet inequality for biased agents), as well as tight bounds on the ratio between the performance of a biased agent and the performance of a rational one. We further establish basic monotonicity results, and show an exponential gap between the performance of a biased agent in a stopping problem with respect to a worst-case versus a random order. As part of this, we establish fundamental differences between optimal stopping problems for rational versus biased agents, and these differences inform our analysis., Comment: To appear in the 2021 ACM Conference on Economics and Computation (EC'21)

When demand exceeds available inventory, suppliers ration their inventory among customers (e.g., retail channels). While there are quantitative methods to facilitate these choices, in practice, humans play an important role in making final decisions that affect allocation efficiency. How do inventory risk and contractual differences (i.e. payment schemes) behaviorally affect allocation decisions when there is scarcity? We study inventory allocations between two retail channels: a high value channel with risk, and a low value channel without risk. The retail channels may also differ in terms of the timing and type of payments that take place. We develop theoretical predictions from behavioral models based on risk aversion, loss aversion, and mental accounting and test these through incentivized controlled laboratory experiments. When profit differences between channels are medium to large, subjects allocate significantly less inventory than the expected–profit–maximizing quantity to the risky, yet more profitable, channel and subjects with stronger risk appetite allocate larger quantities to the risky channel. More interestingly, risk appetite moderates the effect of the timing and type of payments on allocations in these settings. When profit differences between channels are small, the effect of risk appetite depends on the timing of payments. Overall, the possibility of experiencing negative payments (e.g., through buy–backs) reduces allocated quantities across settings. Our insights can inform planner assignment to tasks but also the design of support systems that provide information to planners who make allocation decisions.

Participating (or with-profit) life insurance contracts play an important role in private old-age provision in many countries. Life insurers pool the assets and liabilities of a heterogeneous portfolio of such contracts and typically perform some return smoothing in the collective investment. Participating contracts were historically equipped with a cliquet-style (year-to-year) guarantee. The current low interest rate environment and regulatory requirements have forced life insurers to develop new product designs with lower and/or different types of guarantees. However, observed demand as well as the findings of several studies show that (year-to-year) guarantees are (subjectively) highly attractive for long-term investors. In this paper, we show that return smoothing alone (that is, without guarantees) can significantly increase the attractiveness for such investors. Most importantly, we show that many (loss averse) long-term investors will even prefer products without guarantee but with smoothed returns over other products with guarantee features. The results hold for long-term investors who not only consider the terminal value but at least partially also evaluate potential annual changes in the account value (even if such changes only have a rather low impact on the decision). Additionally, we show that the descriptive model used in this paper is able to explain the popularity of traditional participating life insurance products in Germany providing further evidence that long-term investors consider potential annual value chances already when making the investment decision.

Existing agri-environment subsidy schemes have suffered from poor uptake. The prospect of the UK’s exit from the EU means that agricultural financial subsidies will likely need to be redesigned. This paper leverages insights from prospect theory to test three different aspects of policy framing, which we hypothesised will affect the decisions made by farmers in a policy context. Using a randomised quasi-experimental survey on UK farmers, we find evidence that mental accounting and loss aversion affects policy-related decision-making. Our findings have implications for the design of future policy, and specifically highlight the importance of (i) whether payments are integrated or segregated, and the need for a reduction in application burden; (ii) the labelling applied to agricultural funding schemes; (iii) and the importance of reference points in devising new scheme alternatives.

Do voters vote for the candidate they like or vote against their dislike? This paper aims to broaden the understanding of voting behavior and expand the scope of voting models by incorporating loss aversion, the central concept of the prospect theory, into the traditional proximity model. By testing the ‘vote-against model’ on the 2017 French presidential election data, this paper shows that the French electorate weighed the psychological losses more than gains in their final vote decision. Furthermore, this paper finds that the vote-against model explains and predicts the French electorate’s voting behavior better than the proximity model.

PurposeThis paper attempts to investigate the influence of psychological biases on saving decision-making of bank customers in Ghana.Design/methodology/approachIt employs weighted least squares regression to test the effect of psychological biases on savings decisions of bank customers.FindingsThe findings show that all the nine psychological biases, namely mental accounting, availability, loss aversion, representativeness, anchoring, overconfidence, status quo, framing effect and disposition effect employed for the study have a significant influence on saving decision of bank customers. The results depict that psychological biases are entrenched in the saving pattern of bank customers in Ghana.Practical implicationsFor policy purposes, the study recommends that bank customers need to enhance their knowledge of psychological biases in order to improve their gains from savings, and not to fall prey to these prejudices. The satisfied customer is a dependable source of bank viability and survival.Originality/valueTo the best of the knowledge of the author, this study provides the first empirical evidence of the influence of psychological biases on saving decisions of bank customers in Ghana. The findings of this study will enhance knowledge on the influence of psychological biases on individual decision-making and will accentuate the fact that the individual is not an entirely rational being.

As an outranking-based multiple criteria decision-making method, the gained and lost dominance score (GLDS) method considers the loss aversion of the decision-makers who are more sensitive to the bad aspects of an alternative than the good ones. However, there are unresolved issues in the GLDS method, such as how to deal with numerical decision information, how to model the personalized risk tolerance attitudes of decision-makers, and how to identify soft preference relations and incomparability relations between alternatives. This study aims to address these issues and proposes an enhanced GLDS method with conflict analysis. Firstly, we define the possibility degree of an alternative to achieve the goal under each criterion considering the nonlinear cognition of decision-makers. To reflect the tolerance of a decision maker for the worst performance of an alternative, we introduce a parameter in the aggregation function to weigh the gained and lost dominance scores of each alternative. In addition, a conflict analysis framework is constructed to distinguish the preference, indifference, and incomparability relations between alternatives. Based on the above improvements, an enhanced GLDS method with conflict analysis is developed. We then demonstrate the applicability of the enhanced GLDS method by a case study about evaluating the green economy development levels of 21 cities in Sichuan, China. The comparative analysis of the case study shows that the proposed method has superiority in satisfying personalized requirements of decision-makers.

We study how a gift exchange labor market reacts to the occurrence of negative shocks. One-round shocks may hit either workers’ wages or employers’ earnings (via worker productivity). In our model, other-regarding preferences suffice to predict gift exchange and wages above the competitive level. Wage rigidity is predicted if we add wage illusion and loss aversion. Using a real-effort laboratory experiment, we find support for the model. When there are no shocks, there is gift exchange. After a wage shock we see strong nominal wage rigidity and no impact on workers’ effort, as predicted. Rigidity is also observed after a productivity shock, but here we do observe increases in effort, especially at low wages. The latter is contrary to the model predictions and suggests that productivity shocks alter gift-exchange patterns. We conclude that the wage rigidity often observed in the field can be explained by boundedly rational workers with social preferences.

The reference dependent preference plays a significant role in individual choice behavior. Introducing a third option which is asymmetrical dominated to the dominating option can influence one’s decision. The status quo, endowment and attraction or decoy effect are the main noises. Such noises are proof to counter the rational choice theory. This paper tries to observe the status quo and decoy effect. Existence of those two effects are examined in experimental observation with 32 respondents. Questionnaires are set for respondents to dig information about how their answers contain choices. Two and three varies alternatives are presented to see respondent choice feedback when a third inferior alternative is available. The result shows respondent tendency to switch options when status quo becomes a reference point.

The COVID-19 pandemic has caused millions of cases and over half a million deaths in the United States. While health experts urge citizens to adopt preventative measures such as social distancing and wearing a mask, these recommended behaviors are not always followed by the public. To find a way to promote preventative measures, the present study examined the role of gain-loss framing of COVID-19 related messages on social distancing and mask wearing compliance. Moreover, the study also tested potential moderating effects on framing with three individual characteristics: political ideology, subjective numeracy, and risk attitude. A sample of 375 U.S. adult residents were recruited from Amazon Mechanical Turk. Each participant read either a gain or loss-framed message related to practicing protective behaviors during the COVID-19 pandemic. Participants also completed scales of preventative behaviors, risk attitude, subjective numeracy, political ideology, and other demographic variables. It was found that those who were more liberal, risk-averse and had greater subjective numeracy were more likely to wear a mask and/or follow social distancing. Furthermore, in the presence of demographic and psychological factors, the study found participants in the loss-framed condition than in the gain-framed condition were more likely to adopt both preventative measures, supporting the notion of loss aversion. Additionally, the framing effect was also moderated by political ideology on mask-wearing, with the effect being stronger in liberals than in conservatives. Collectively, the study implies message framing may be a useful means to promote preventative measures in the current pandemic.

Based on a robust decision phenomenon of loss aversion, people are distinctly more sensitive to losses than to gains. The psychological pain experienced due to a loss is greater than the pleasure experienced due to a gain of the same amount. We argue that physical pain can be viewed as a psychological loss with diminishing sensitivity. Pain thus would be preferred summed rather than distributed. The results from 89 student-participants recruited from a public university in the Midwest US revealed that chronic pain is correlated with reduced subjective life expectancy and increased impulsivity. We found a significant propensity to prefer sharp-and-shorter pain to milder-and-longer pain. The loss-aversion score predicted this propensity in pain management. We developed a new behavioral measure of Band-Aid removal as a predictor for pain duration-intensity tradeoff. The higher the Band-Aid removal time, the higher the preference for higher-duration and lower intensity, and the lower willingness to seek medical attention for pain. The participants also revealed a higher willingness to seek medical help for generalized pain than localized pain to reduce information ambiguity.

This study examines the relationship between behavioral biases (herd behavior bias, overconfidence bias, and loss aversion bias) and the Big Five Personality traits. An exploratory study is devised to explore the links between biases and personality. The study develops a structured test battery to measure the biases. The items measuring overconfidence, loss aversion, and herd behavior bias was conceptualized and validated in the study. The test battery was sent out to 294 investors, and with a response percentage of 68%, 200 respondents returned the survey. The study employed confirmatory factor analysis (CFA) to validate the psychological biases questionnaire and employed structural equation modeling for path analysis. Two of the big five personality traits, i.e., Extraversion and Openness to experience, reported a significant causal relationship with all three biases.

High-achieving, low-income students attend selective colleges at far lower rates than upper-income students with similar achievement. Behavioral biases, intensified by complexity and uncertainty in the admissions and aid process, may explain this gap. In a large-scale experiment we test an early commitment of free tuition at a flagship university. The intervention did not increase aid: rather, students were guaranteed before application the same grant aid that they would qualify for in expectation if admitted. The offer substantially increased application (68 percent versus 26 percent) and enrollment rates (27 percent versus 12 percent). The results suggest that uncertainty, present bias, and loss aversion loom large in students’ college decisions. (JEL I22, I23, I24, D31, I28)

People occasionally face sure loss prospects. Do they seek risk in search of better outcomes or contend with the sure loss and focus on what is left to be saved? We addressed this question in three experiments akin to a negative interest rate framework. Specifically, we asked participants to allocate money (Experiments 1 and 2) or choose (Experiment 3) between two options: (i) a loss option where, for sure, they would end up with less, or (ii) a mixed gamble with a positive expected outcome, but also the possibility of an even larger loss. Risk aversion (i.e., choosing the sure loss) ranged from 80% to 36% across the three experiments, dependent on varied sizes of sure losses or expected outcomes. However, overall, the majority (> 50%) of allocations and choices were for the sure loss. Our findings indicate a tolerance for sure losses at the expense of mixed gambles yielding much better expected outcomes. We discuss the implications of this sure-loss tolerance for psychological research, its implications in terms of (cumulative) prospect theory, and what the results mean for the implementation of negative interest rates. Supplementary Information The online version contains supplementary material available at 10.3758/s13423-021-01921-0.

Prospect theory emerged as one of the leading descriptive decision theories that can rationalize a large body of behavioral regularities. The methods for eliciting prospect theory parameters, such as its value function and probability weighting, are invaluable tools in decision analysis. This paper presents a new simple method for eliciting prospect theory’s value function without any auxiliary/simplifying parametric assumptions. The method is applicable both to choice under ambiguity (Knightian uncertainty) and risk (when events are characterized by objective probabilities). Our new elicitation method is implemented in a simple paper-and-pencil experiment (via an iterative multiple price list format). This is one of the first experiments that elicits non-parametric prospect theory’s value function with salient rewards. The collected data generally confirm findings in the existing literature: the value function is S-shaped (concave in the gain domain and convex in the loss domain) though there is a weaker loss aversion on the aggregate level and a substantial heterogeneity in loss aversion on the individual level (41% loss averse, 6% loss neutral and 53% gain seeking).

We propose a new assessed value approach to control for the amount of persistent unobserved quality. We apply our approach to a well-established two-stage framework developed by Genesove and Mayer (GM, 2001), who test the effect of an expected loss on final transaction prices in the housing market. We show that our assessed value model effectively mitigates the omitted variable bias and produces similar results as GM when the first-stage residual is included. Importantly, our model does not rely on repeat sales and therefore provides a powerful new tool for estimating market value. Results are robust to alternative specifications, to controlling for loan-to-value ratios, to replacing final sale price with listing price, to alternative fixed effects, to subperiods, to different holding periods, to simulated quality, to excluding flippers, and to controlling improvements between sales.

Incomplete contracts are the rule rather than the exception, and any incentive scheme faces the risk of improving performance on incented aspects of a task at the detriment of performance on non-incented aspects. Recent research documents the effect of loss-framed versus gain-framed incentives on incentivized behavior, but how do such incentives affect overall performance? We explore potential trade-offs by conducting field experiments in an artificial “workplace”. We explore two types of incentive spillovers: those contemporaneous to the incented task and those subsequent to the incented task. We report three main results. First, consonant with the extant literature, a loss aversion incentive induces greater effort on the incented task. Second, offsetting this productivity gain, we find that the quality of work decreases if quality is not specified in the incentive contract. Third, we find no evidence of harmful spillover effects to subsequent tasks; if anything, the loss aversion incentive induces more effort in subsequent tasks. Taken together, our results highlight that measuring and accounting for incentive spillovers are important when considering their overall impact.

Is the pain of a loss greater in magnitude than the pleasure of a comparable gain? Studies that compare positive feelings about a gain with negative feelings about a comparable loss have found mixed answers to this question. The pain of a loss can be greater than, less than, or equal to the pleasure of a comparable gain. We offer a new approach to test hedonic loss aversion. This method uses emotional reactions to the reference point, a positive change, and a negative change. When we manipulated the reference point (i.e., pleasurable and painful), two distinct patterns emerged. Pain surpassed pleasure (loss aversion) when the reference point was positive, and pleasure exceeded pain (gain seeking) when the reference point was negative. A reference-dependent version of prospect theory accounts for the results. If the carriers of utility are changes from a reference point—not necessarily the status quo—both loss aversion and gain seeking are predicted. Loss aversion and gain seeking can be reconciled if you take the starting point into account.

Long before Prospect Theory and Loss Aversion Theory, Thomas Hobbes’s account of self-interest and risk assessment formed the basis of a powerful argument for the benefits of negative appeals. Dism...

This paper argues that the application of loss aversion to wage determination can explain the deflation puzzle: the failure of persistently high unemployment to exert a persistent downward impact on the rate of inflation in money wages. This is an improvement on other theories of the deflation puzzle which simply assume downward wage rigidity, namely the hysteresis theory, the lubrication theory and the efficiency wage theory. The paper presents estimates that support the loss-aversion explanation of the deflation puzzle for both the US and Australia. Furthermore, our estimation approach gives a more precise estimate of the potential rate of unemployment than does the natural rate approach and reveals potential rates of unemployment for the US and Australia at the end of 2017 of about 4 per cent and 3.3 per cent respectively.

The aim of this study is to evaluate the indicators affecting the decision of investors in nuclear energy sector within the scope of behavioral economics. There are two different stages in the analysis process in this paper. First, after a detailed literature review, six different behavioral economics biases are selected as the criteria. Secondly, these factors are weighted for the nuclear energy investors. For this purpose, fuzzy DEMATEL methodology is used. The findings indicate that uncertainty avoidance and overconfidence bias are the most essential factors affecting the decision of investors. Similarly, the mental accounting bias and regret avoidance also have important impacts for this situation. However, loss aversion bias and lack of self-control have the lowest weights for the nuclear energy investors. Additionally, with respect to the impact relation map, it is concluded that uncertainty avoidance is the most influencing issue whereas overconfidence bias is identified as the most influenced factor. Our results suggest that that strategies should be implemented to decrease the anxiety of the nuclear energy investments. For this purpose, governments should take some actions to minimize the uncertainty in the market. For instance, providing loans with low interest rate can minimize interest rate risk. This will probably decrease the anxiety of the nuclear energy investors.

This paper develops a model of insurance choice and derives the implications for insurance plan selection when consumers are loss averse. Previous work has shown that health insurance plan switching costs can increase welfare by reducing adverse selection. Loss aversion provides a natural mechanism for modeling non-pecuniary switching costs and thus gives a basis for modeling insurance choice in environments where explicit switching costs might be minimal. I also derive a test for the presence of both adverse selection and switching costs based on differential spending of switchers and non-switchers. I test this model using data from a benefits firm providing employment-based health insurance. Employees choose between low and high coverage plans from the same insurer during the annual open enrollment period, and explicit switching costs are likely to be low. I assume employees take their current plan as the reference point for choosing the next year’s plan. I find evidence of adverse selection and significant switching costs.

Recent developments in research on insurance reveal a shift towards behavioral insurance. Decisions remain rational but in a broader framework of reference that accounts for the role of loss aversion, ambiguity, framing, reference points, and emotions in people's decisions. In this special issue, many of those points are discussed in connection with the demand for insurance. Some of the major insurance puzzles, such as insufficient demand for coverage, the crowding-out effect between insurance mechanisms, and the opportunism in the insurance market that arises from asymmetric information are covered. This paper introduces 24 texts on behavioral insurance.

The rise of digital platforms as new sociotechnical systems is profoundly transforming the market trajectory. Drawing on Behavioural Reasoning Theory, this study seeks to improve our understanding of consumers’ rational decision-making and investigate how reasons influence motives and intentions toward using On-Demand Service Platforms (ODSPs). We empirically examined acceptance and resistance reasons in a single framework by analysing 523 respondents’ data. The results demonstrate that the proposed model can explain the variance of consumers’ rational decision-making in adopting or rejecting ODSPs. In addition, the findings underline the effect of reasons against on reasons for and the moderating role of inertia and perceived effectiveness of structural assurance in our research framework. Theoretically, current study contributes to the literature by realizing the influential context-specific reasons of prospective consumers for/against using digital platforms, highlighting the importance of consumers’ loss aversion, and examining the moderating conditions. Practically, the results bring new insights for both managers and practitioners in line with the prosperity of digital platforms.

In this paper, we incorporate a psychological factor called narrow framing into standard vNM expected utility model to explain low insurance purchase rate observed in many insurance markets which are sometimes heavily subsidized by governments. In this psychological model, insurance purchase is not only viewed as a way of transferring wealth from the states of low loss to the states of high loss, but also as a pure gamble against insurance companies. When the received indemnity is lower than the paid insurance premium, the economic agent feels like losing the gamble and vice-versa. We study the insurance demand when coinsurance policy is offered and show that partial insurance is strictly preferred even in case of zero transaction cost. We also discuss the optimal insurance design under narrow framing. It turns out that a (non-linear) coinsurance contract is optimal for losses above a certain threshold. We further allow for possible loss aversion and derive the optimal insurance scheme under both narrow framing and loss aversion. As a result, a flat payment of insurance premium should be applied to some intermediate losses.

Loss aversion is the tendency to be more sensitive to losses than comparable gains. Recent work has shown that men's loss aversion can change when they have a currently activated mating motivation. The current research examined whether women's sensitivity to loss might be influenced by the hormones that regulate fertility, which are known to activate intra-sexual competition and mating motivation. Three studies found that women became less sensitive to loss at peak fertility—near ovulation—in some contexts. Ovulating women reported being less upset at the prospect of losing hypothetical amounts of money and products (e.g., laptop, tennis shoes), as well as accepted lower selling prices for a picture frame, an indication of decreased loss aversion. We also uncovered a theoretically-derived boundary condition for this effect: ovulation led women to become more loss averse when the product was directly relevant for enhancing attractiveness (e.g., lipstick).

The research essay aims to understand investor's ability to forecast having the perception of status quo and monetary loss-aversion in the situation of amygdala damages and asymmetry during decisions regarding stock's investment and use of several techniques to make efficient investment decisions based on optimal forecasting. The objectives of this study are to inquire about the irrationalities in investors at the time of stock's investment, having status quo and monetary loss-averse bias of investors at the time of amygdala damages and asymmetry and find-out the ways to deal with these situations. A qualitative research style was used for data collection for the subject study. Partially-organized discussions were arranged to get information in detail. A sample of 15 experienced stock marketers and brokers and 35 investors from the Pakistan stock exchange were selected for this study. This inquiry found the definite type of edgy and biased investor's attitude in the market and also found their solutions. This study perceptibly peaks the ways to deal with stress and biasness through optimal forecasting techniques and some other suggestions.

This study investigates the joint pricing and stocking decisions for a loss‐averse retailer with reference point effect under stochastic demand. By solving an expected utility maximization model developed based on the prospect theory, the optimal pricing and stocking decisions are derived and compared with those of the classical newsvendor. The results show that the optimal decisions significantly depend on the loss aversion coefficient, optimism level, and reference effect strength. Smaller loss aversion coefficient and lower optimism level lead to higher expected utilities. In particular, a loss‐averse retailer with a smaller loss aversion coefficient benefits from a higher reference effect strength and vice versa.

By data of 10,357 individual investors from Renrendai.com, an established peer‐to‐peer (P2P) lending platform in China over the period of 2011–2014, we examine whether investors’ prior investment outcomes influence their subsequent risk‐taking behavior in the credit market. We find strong evidence that a prior trading loss induces greater subsequent risk‐taking. Specifically, investors decrease their number of bids and the bidding amount; and choose listings with a lower interest rate and higher credit grade. The investors who obtain more prior gains become more cautious and take on less posterior risk. Overall, this study complements the lack of relevant research in the credit market.

Using the Keynesian model set out in McDonald (2020), in which downward wage rigidity is supported by worker loss aversion with respect to wages, this article shows that a period of social distancing (SD) can leave a post-SD economy with both stimulatory and depressive effects A loss of productive capacity is stimulating Costs of restarting firms, lower labour productivity when restarted and a desire to restore wealth from debt incurred during the period of SD are depressive If, as seems highly probable, the net effect on economic activity is negative then a fiscal expansion can restore activity To avoid an increased government budget deficit, this expansion would probably require an increased tax rate Reductions in real wages may also be necessary A desire to balance the government budget combined with no increase in the tax rate would be unfortunate, because it would cause a further contraction in activity from its post-SD level

We explicitly derive and explore the optimal consumption and portfolio policies of a loss-averse individual who endogenously updates his or her reference level over time. We find that the individual protects current consumption by delaying painful reductions in consumption after a drop in wealth, and increasingly so with higher degrees of endogeneity. The incentive to protect current consumption is stronger with a medium wealth level than with a high or low wealth level. Furthermore, this individual adopts a conservative investment strategy in normal states and typically a more aggressive strategy in good and bad states. Endogeneity of the reference level increases overall risk-taking and generates an incentive to reduce risk exposure with age even without human capital. The welfare loss that this individual would suffer under the conventional constant relative risk aversion (CRRA) consumption and portfolio policies easily exceeds 10%. This paper was accepted by Tyler Shumway, finance.

This paper explains Endowment Effect, Loss Aversion and Status Quo Bias as part of anomalies that Kahneman explained. Endowment effect results as people tend value something more precious when they own the good. Loss Aversion, when people put weight on losing higher than winning. Status Quo Bias, people tendency to stick on default option rather than finding other options. It also provides with evidence and experimental research that had been conducted by researcher focusing in the field of the study. Some examples also discussed to broadening the understanding in the topic

This paper is about the inflation of loss talk in a certain discourse on translation and how translation is often presented as a disaster or even an emblem of what is always missing. My guiding questions will be: Why has the notion of loss become such a dominant concept when talking about translation? Where does this rhetoric of loss—in translators’ reflections, in translation reviews as well as in scholarly material of theoreticians—come from? What are some of the assumptions that underlie this loss discourse on translation products? Can we go beyond a descriptive perspective of the phenomenon and try to come up with a few explanations for this loss talk on translation? I shall furthermore explore the concept of loss-aversion from economics and decision theory (Kahneman, 2011), and argue that loss-aversion may help us to better understand how the notion of loss, and more generally the gain-loss equation, operate in the field of translation. Finally looking at translation discourse through the losing-glass, I will briefly discuss a few “unlosables” from the field of biblical Hebrew translation., Cet article traite de la notion de perte dans un certain discours sur la traduction et de la tendance à présenter la traduction comme un échec, voire comme l’emblème de ce qui fait constamment défaut. L’article s’articule autour des questions suivantes : pourquoi la notion de perte est-elle devenue si dominante dans le discours sur la traduction? D’où vient cette rhétorique de la perte que l’on trouve dans les réflexions des traducteurs, les revues de traduction et les ouvrages des théoriciens? Quelles sont certaines des hypothèses qui la sous-tendent? Est-il possible d’aller au-delà d’une perspective descriptive du phénomène et de trouver des explications à ce discours sur la perte en traduction? J’explorerai en outre le concept d’aversion aux pertes issu du domaine de l’économie et de la théorie de la décision (Kahneman, 2011), et soutiendrai que l’aversion aux pertes peut nous aider à mieux comprendre comment fonctionne la notion de perte, et plus généralement l’équation gain-perte, dans le domaine de la traduction. Enfin, en examinant le discours de la traduction sous l’angle de la notion de perte, je discuterai brièvement de quelques « imperdables » du champ de la traduction de l’hébreu biblique.

In recent years, the financial world has become more complex and intricate. In this context, numeracy and, particularly, financial literacy, are seen as paramount in providing consumers with the knowledge and confidence required to take part in financial markets. Despite some indicative empirical findings, it is still to be ascertained how the two competences differentially contribute to the quality of decision-making in financial contexts. Furthermore, it is still unknown to what degree financial literacy and numeracy, taken as relevant mind-ware for financial decision-making, are effective in guarding against well-documented biases such as loss aversion and framing effects. This study aims to clarify these issues by employing an experimental task, conceived as an approximation to real-world decision-making involving the sale of shares. Our results suggest that numeracy and financial literacy affect decision-making differently in a pattern that, in part, runs counter to conventional economic theory. The data indicate that numeracy promotes a pattern of choices closer to economic rationality, while financial literacy can prove counterproductive and may amplify cognitive biases, namely framing effects and loss aversion. The outcomes are interpreted in light of dual-process theories, and the political implications discussed.

Purpose The purpose of this paper is to document the relation between the bank’s regional CEO’s emotional bias (optimism and loss aversion) and the delegation of decision rights to the account manager. Design/methodology/approach The partial least squares (PLS) method is applied to investigate the degree to which bank’s regional CEO delegate decisions and the circumstances that drive variation in delegation. Findings The results show that delegation does not appear to be monolithic; instead, the results show that delegation varies with the personal characteristics of the bank’s regional CEO. Practical implications Banks are invited to take into account the effect of the emotional biases of the directors on the delegation of its power. Originality/value The authors put forward an original effort that is intended to discuss in particular the effect of psychological biases on the decentralization of the decision-making rights.

Background This study investigated whether patterns of impulsive decision-making (i) differ between individuals with DSM-5 substance use disorders (SUD) or non-substance-related addictive disorders (ND) and healthy controls, and (ii) predict the increase of SUD and ND severity after one year. Methods In a prospective-longitudinal community study, 338 individuals (19–27 years, 59% female) were included in one of three groups: SUD (n = 100), ND (n = 118), or healthy controls (n = 120). Group differences in four impulsive decision-making facets were analyzed with the Bayesian priors: delay discounting (mean = 0.37, variance = 0.02), probability discounting for gains and for losses (each − 0.16, 0.02), and loss aversion (− 0.44, 0.02). SUD and ND severity were assessed at baseline and after 1 year (n = 312, 92%). Predictive associations between decision-making and SUD/ND severity changes were analyzed with the Bayesian prior: mean = 0.25, variance = 0.016. Results Compared with controls, the SUD group displayed steeper delay discounting and lower probability discounting for losses; the ND group displayed lower probability discounting for losses (posterior probabilities > 98%). SUD symptom increase after 1 year was predicted by steeper delay discounting and lower loss aversion; ND symptom increase by lower probability discounting for losses and lower loss aversion (posterior probabilities > 98%). There was low evidence for predictive relations between decision-making and the quantity-frequency of addictive behaviours. Discussion Impulsive decision-making characterizes SUD and ND and predicts the course of SUD and ND symptoms but not the engagement in addictive behaviours. Strength of evidence differed between different facets of impulsive decision-making and was mostly weaker than a priori expected.

Research on the asymmetric effect of negative versus positive affective states (induced by gains or losses) on scope of attention, both at a perceptual and a conceptual level, is abundant. However, little is known about the moderating effect of anticipating gains or losses versus actually experiencing them and about any downstream consequences of these effects on goal-directed behaviour. In two studies, we show that gains versus losses induce qualitatively different processes. In Experiment 1, we demonstrate that the anticipation of monetary gains results in a narrowing of attentional scope, while experiencing gains broadens the scope of attention. We find the reverse pattern concerning monetary losses - while anticipation of monetary losses results in broadening of attentional scope, the actual experience of losses results in narrowing of attentional scope. Additionally, Experiment 2 replicates these findings and shows how differential attentional tuning as a function of the anticipation versus experience of gains versus losses modulates priming-induced goal-directed behaviour.

This paper considers an auction-based parking reservation problem where a parking management platform is the auctioneer and the drivers are bidders. The platform is in charge of multiple homogeneous parking spaces. A winner may leave earlier or occupy the parking space longer than the time he has reserved. The phenomena are known as (ex post) demand disturbances, which can occur only after the last auction terminates. The platform may penalize or compensate a driver who causes demand disturbance. Besides, investigation is conducted into three types of driver behaviors, namely, gain/loss neutrality, loss aversion, and gain seeking, and the reference effects are examined. An effective multi-stage Vickrey–Clarke–Groves (MS-VCG) auction mechanism is raised. Expect for the disturbance makers, the MS-VCG auction is capable to achieve allocative efficiency, incentive compatibility, and individual rationality. As shown by computational results, in the absence of reference effect, both penalty and compensation rise with the number of bidders. If drivers are gain/loss neutral, the average utility of winners reaches the highest, while the penalty and compensation reach the lowest, as compared to loss-averse and gain-seeking drivers. The total VCG payment received by the auctioneer increases with the reference price. Finally, based on our proposed model, the platform has the ability to deal with the demand disturbances by holding a certain number of parking spaces that are not auctioned for reservation.

This paper studies how voter loss-aversion affects electoral competition in a Downsian setting. Assuming that the voters’ reference point is the status quo, we show that loss-aversion has a number of effects. First, for some values of the status quo, there is policy rigidity both parties choose platforms equal to the status quo, regardless of other parameters. Second, there is a moderation effect when there is policy rigidity, the equilibrium policy outcome is closer to the moderate voters’ ideal point than in the absence of loss-aversion. In a dynamic extension of the model, we consider how parties strategically manipulate the status quo to their advantage, and we find that this increases policy rigidity. Finally, we show that with loss-aversion, incumbents adjust less than challengers to changes in voter preferences. The underlying force is that the status quo works to the advantage of the incumbent. This prediction of asymmetric adjustment is new, and we test it using elections to US state legislatures. The results are as predicted: incumbent parties respond less to shocks in the preferences of the median voter.

The “general risk question” (GRQ) has been established as a quick way to meaningfully elicit subjective attitudes toward risk and correlates well with real-world behaviors involving risk. However, little is known about what aspects of attitudes toward financial risk are captured by the GRQ. We examine how answers to the GRQ correlate with different preference motives and biases toward financial risk using an incentivized choice task (n = 1,730). We find that the GRQ has meaningful correlation with loss aversion and attitudes toward variation in financial losses, but much weaker to non-existent correlations with attitudes toward variation in financial gains, likelihood insensitivity, and certainty preferences. These results suggest that practical applications using the GRQ as an index for financial risk preferences may be most appropriate in settings where decisions rest on attitudes toward financial losses.

Since Korea's transition to democracy in 1987, Korean leaders have become increasingly confrontational toward Japan, with such steps ranging from verbal threats filled with hawkish rhetoric to material threats, such as displays of military force and threats of actually using it. To explain South Korean leaders’ hawkish approach to Japan, we build a theory of “prospective diversion” by combining insights from the diversionary theory of international conflict and prospect theory. We argue that foreign policy leaders have a strong tendency to overvalue political losses relative to comparable gains in their approval ratings. As a result, they are inclined to take risk-seeking diplomatic actions toward foreign adversary to avoid further losses. By conducting statistical analyses and developing case studies of Korean leaders’ confrontational policy decisions regarding Japan, we present empirical findings consistent with our hypothesis that Korean leaders are inclined to engage in prospective diversion toward Japan when they suffer domestic losses. This article provides an enhanced understanding of the domestic political foundation of South Korean leaders’ increasingly contentious attitude toward Japan.

The rational choice theory holds that consumers will always choose the product with the maximum utility, while the context effect emphasizes that consumers’ choice will change with the change of the situation, and the rational decision is not always made. As a model of context effect, the compromise effect points out that when an extreme option is added to the selection set, the original option will become a compromise option and become more attractive. On the basis of a systematic review of the literature related to the compromise effect, this paper summarizes and prospects the compromise effect. First of all, this paper introduces the concept of the compromise effect, and the similarities and differences between the compromise effect, the context effect and the attraction effect. Secondly, this paper discusses the formation mechanism of compromise effect from the perspective of reason seeking, loss aversion and rational decision-making. Third, based on the literature review, this paper discusses the impact factors of the compromise effect. Finally, this paper puts forward the enlightenment of the compromise effect to the marketing practice, and points out the future research direction.

Every day, human beings make decisions with social consequences. These social consequences matter most when they impact those closest to us. Recent research has shown that humans exhibit reliable preferences when deciding between conflicting outcomes involving close others – for example, prioritizing the interests of one's family member over one's friend. However, virtually nothing is known about the mechanisms that drive these preferences. We conducted a pre-registered study in a large (maximum N = 375) sample to quantify the computational and motivational mechanisms of human social decision-making preferences involving close others. By pairing assessment techniques from behavioral economics and psychological science with computational modeling and random coefficient regression, we show that value-based cognitive computations (e.g., risk and loss aversion) drive social decision-making preferences involving financial outcomes, whereas socioemotional motivations (e.g., relationship quality) underlie preferences involving social outcomes. These results imply mechanistic heterogeneity, underscoring a need for greater attention to contextual specificity in social decision-making.

We study a dynamic game in which players compete for a prize. In a waiting game with two-sided private information about strength levels, players choose fighting, fleeing, or waiting. Players earn a “deterrence value” on top of the prize if their opponent escapes without a battle. We show that this value is a key determinant of the type of equilibrium. For intermediate values, sorting takes place, with weaker players fleeing before others fight. Time then helps to reduce battles. In an experiment, we find support for the key theoretical predictions and document suboptimal predatory fighting.

Decreased punishment sensitivity in alcohol use disorder (AUD) might reflect a reduction in the typical human tendency to overweigh negative choice outcomes compared with equivalent positive ones, that is, 'loss aversion.' While this hypothesis is supported by previous reports of reduced loss aversion in AUD, it is still unknown whether such decreased sensitivity to prospective losses represents a specific facet of altered decision-making or a secondary effect of executive/working-memory impairments. We addressed this issue by assessing whether lower loss aversion in 22 AUD patients compared with 19 healthy controls is explained by their differential executive or working-memory performance and by investigating its neural basis in terms of grey matter density and cortical thickness via voxel- and surface-based morphometry, respectively. A significant decrease of loss aversion in patients, unrelated to their impaired executive/working-memory performance, reflected the reduction of posterior fronto-medial grey matter density and right frontopolar cortical thickness. Rather than their executive deficits, patients' reduced loss aversion reflects the structural damage of the posterior fronto-medial cortex previously associated with solving conflicts at the response level, where earlier functional magnetic resonance imaging (fMRI) studies have shown a 'neural loss aversion' pattern of steeper deactivation for losses than activation for gains, and of the frontopolar cortex in charge of managing competing goals. These findings highlight possible directions for addressing AUD patients' high relapse rate, for example, cognitive-behavioural rehabilitative interventions enhancing the awareness of the adverse outcomes of addiction or neurostimulation protocols targeting the regions processing their salience.

The endowment and attachment effect are empirically well-documented in bilateral trade situations. Yet, the theoretical literature has so far failed to formally identify these effects. We fill this gap by introducing expectations-based loss aversion, which can explain both effects, into the classical setting by Myerson and Satterthwaite (1983). This allows us to formally identify the endowment and attachment effect and study their impact on information rents, allowing us to show that, in contrast to other behavioral approaches to the bilateral trade problem, the impossibility of inducing materially efficient trade persists in the presence of loss aversion. We then turn to the design of optimal mechanisms and consider the problem of maximizing the designer's revenue as well as gains from trade. We find that the designer optimally provides the agents with full insurance in the money dimension and, depending on the distribution of types, optimally increases or decreases the trade frequency in the presence of loss aversion. This version: July 2022

This paper innovatively analyses the joint occurrence of cognitive biases in groups of stock exchange investors. It considers jointly a number of common fallacies: confirmation bias, loss aversion, gambler’s fallacy, availability cascade, hot-hand fallacy, bandwagon effect, and Dunning–Kruger effect, which have hitherto been studied separately. The paper aims to highlight the diverse range of investor’s profiles which are characterised by such fallacies, and the considerable differences observed based on their age, stock market experience and perception of market trends. The analysis is based on k-means and hierarchical clustering, feature importance and Principal Component Analysis, which were applied to data from the Tehran Stock Exchange. There are a few essential findings which contribute to the existing literature. Firstly, the results show that gender does not have a role to play in diversifying the investors’ profiles. Secondly, cognitive biases are bundled, and we distinguish four investors’ profiles; thus, they should be analysed jointly, not separately. Thirdly, the exposure to cognitive biases differs significantly due to the individual features of investors. The group most vulnerable to almost all analysed biases are inexperienced investors, who are pessimistic about market developments and have invested a large amount. Fourthly, the ages of investors are essential only in connection with other factors such as experience, market perception and investment exposure. Young (20–40 years), experienced investors with huge investments (+1000 mln rials/+24,000 USD) are mostly less exposed to all biases and much less risk-averse. Additionally, older (50+) and experienced investors (5–10 years) who are more optimistic about trends (hot hand bias) were affected much less by cognitive biases, only showing vulnerability to the Dunning–Kruger effect. Fifthly, more than 40% of investors apply consultation and technical analysis approaches to succeed in trading. Finally, from a methodological perspective, this study shows that unsupervised learning methods are effective in profiling investors and bundling similar behaviours.

Blood shortages remain an ongoing challenge, ameliorable by increasing blood donations. Choice architecture is an emerging concept in psychology dealing with the targeted presentation of options to encourage a desired decision. A pilot study was designed to test the feasibility of implementing six choice architecture strategies on a Midwest high-school blood drive. These include framing, conformity, mere measurement, availability heuristic, loss aversion and status quo bias. A pre-post interrupted time-series evaluation was performed to evaluate for an immediate impact on blood donations. All six of the intended choice architecture strategies were successfully implemented. The pre-intervention 5-year average number of blood donations per blood drive was 15 (4.3% of age eligible donors) whereas post intervention, the number of blood donors rose to 25 (7.1% of age eligible donors; p-value = .0013). The application of choice architecture to blood donor recruitment strategies is feasible and has the potential to reduce the burden of blood shortages.

Two special forms of bias, endowment and reactive devaluation are examined. Endowment effect (EE) describes the phenomenon that people would require more to relinquish items that they own than they would be willing to pay for the same. There are four sources of EE: ownership, loss aversion, status quo bias and strategic bargaining habit. It was further found that construction disputing parties from different construction sectors displayed a similar extent of EE behaviours in CDN. Reactive devaluation (RD) is another well-recognized psychological bias and describes the tendency of downgrading the value of offers proposed by the negotiating counterpart. Five taxonomies of RD behaviours in CDN were identified in this study. These are reluctance to change; doubts about counterpart’s ability; overconfidence; biased information processing and mistrust towards the counterpart. The potency of these taxonomies was validated with confirmatory factor analysis. The findings timely remind the construction dispute negotiators should review settlement offers with an open mind.