Year: 2006
Type: article
Abstract: The principle of loss aversion is thought to explain a wide range of anomalous phenomena involving tradeoffs between losses and gains. In this article, I show that the anomalies loss aversion was introduced to explain - the risky bet premium, the endowment effect, and the status-quo bias - are characterized not only by a loss/gain tradeoff, but by a tradeoff between the status-quo and change; and, that a propensity towards the status-quo in the latter tradeoff is sufficient to explain these phenomena. Moreover, I show that two basic psychological principles - (1) that motives drive behavior; and (2) that preferences tend to be fuzzy and ill-defined - imply the existence of a robust and fundamental propensity of this sort. Thus, a loss aversion principle is rendered superfluous to an account of the phenomena it was introduced to explain.
Source: Judgment and Decision Making
Author: David Gal
Institution: Stanford University
Language: English
Subfield: General Decision Sciences
Field: Decision Sciences
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $3,550
OpenAlex ID: W2152759986