Loss Aversion - Questions About The Existence of Loss Aversion

Questions About The Existence of Loss Aversion

Recently, studies have questioned the existence of loss aversion. In several studies examining the effect of losses in decision making under risk and uncertainty no loss aversion was found. There are several explanations for these findings: one, is that loss aversion does not exist in small payoff magnitudes; the other, is that the generality of the loss aversion pattern is lower than that thought previously. Finally, losses may have an effect on attention but not on the weighting of outcomes; as suggested, for instance, by the fact that losses lead to more autonomic arousal than gains even in the absence of loss aversion.

Loss aversion may be more salient when people compete. Gill and Prowse (2012) provide experimental evidence that people are loss averse around reference points given by their expectations in a competitive environment with real effort.

Loss aversion and the endowment effect are often confused. Gal (2006) argued that the endowment effect, previously attributed to loss aversion, is more parsimoniously explained by inertia than by a loss/gain asymmetry.