'At Least I Didn't Lose Money' - Nominal Loss Aversion Shapes Evaluations of Housing Transactions
32 Pages Posted: 16 Oct 2012
Date Written: October 12, 2012
Loss aversion is one of the most robust findings to have emerged from behavioral economics. Surprisingly little attention, however, has been devoted to nominal loss aversion, the interaction of loss aversion and money illusion. People tend to think of transactions in terms of their nominal (monetary) values. Real losses may therefore loom larger in people’s minds when they lose money than when real losses are hidden by purely nominal gains. Using a survey experiment with a large and heterogeneous sample, we show that evaluations of housing transactions are systematically biased by purely nominal gains versus losses.
Keywords: loss aversion, money illusion, bounded rationality, cognitive reflection, cognitive ability, survey experiment
JEL Classification: A10, C91, D00
Suggested Citation: Suggested Citation