'At Least I Didn't Lose Money' - Nominal Loss Aversion Shapes Evaluations of Housing Transactions

32 Pages Posted: 16 Oct 2012

See all articles by Thomas Alexander Stephens

Thomas Alexander Stephens

WU Vienna University of Economics and Business; University of Vienna

Jean-Robert Tyran

University of Vienna; University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 12, 2012

Abstract

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

Stephens, Thomas Alexander and Tyran, Jean-Robert, 'At Least I Didn't Lose Money' - Nominal Loss Aversion Shapes Evaluations of Housing Transactions (October 12, 2012). Univ. of Copenhagen Dept. of Economics Discussion Paper No. 12-14, Available at SSRN: https://ssrn.com/abstract=2162415 or http://dx.doi.org/10.2139/ssrn.2162415

Thomas Alexander Stephens

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria
+43-1-31336-5833 (Phone)
+43-1-31336-9203 (Fax)

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Jean-Robert Tyran (Contact Author)

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1090
Austria

HOME PAGE: http://homepage.univie.ac.at/jean-robert.tyran/

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+45 353 23 027 (Phone)

HOME PAGE: http://www.econ.ku.dk/tyran/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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