Aspirations, Well-Being, Risk-Aversion and Loss-Aversion

33 Pages Posted: 4 Apr 2012

See all articles by Kees C. G. Koedijk

Kees C. G. Koedijk

Tilburg University - Department of Finance

Rachel A.J. Pownall

Tilburg University - Department of Finance; Maastricht University - Department of Finance

Meir Statman

Santa Clara University - Department of Finance

Date Written: March 2012

Abstract

Financial well-being is distinct from income. Some people with high incomes suffer low financial well-being, as their incomes fall short of their aspirations. Such people feel propelled to reach their aspirations by taking risk and willing to bear losses. Conversely, some people with low incomes enjoy high financial well-being, as their incomes exceed their aspirations. We find that people whose aspirations exceed their income are less risk-averse and less loss-averse than people whose incomes exceed their aspirations. We also find that competitive and status-seeking people are less risk-averse than people who are less competitive and status-seeking, and that status-seeking people are less loss-averse than people who are not as status-seeking.

Keywords: behavioural portfolio theory, loss-aversion, prospect theory, risk-taking, subjective well-being

JEL Classification: D81, G11

Suggested Citation

Koedijk, Kees G. and Pownall, Rachel Ann Jane and Statman, Meir, Aspirations, Well-Being, Risk-Aversion and Loss-Aversion (March 2012). CEPR Discussion Paper No. DP8904. Available at SSRN: https://ssrn.com/abstract=2034122

Kees G. Koedijk (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Rachel Ann Jane Pownall

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Meir Statman

Santa Clara University - Department of Finance ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4147 (Phone)
408-554-4029 (Fax)

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