On the Descriptive Value of Loss Aversion in Decisions under Risk

Abstract:     
Four studies are presented that examine the loss aversion assertion in decisions under risk. We found no evidence for loss aversion in one-shot choices among low magnitude mixed gambles. For example, half of the participants preferred the gamble "1000 with probability 0.5; -1000 otherwise" over "0 with certainty." The effect of losses appears to increase when the experiment is long and boring (includes no feedback), the payoff magnitude is high, and/or the safer option is framed as the status quo. The relationship of these results to previous studies of the loss aversion assertion is discussed.

Keywords: Prospect theory; Relative risk aversion

JEL Classifications: C91, D01

Working Paper Series