Loss Aversion: An Overview
Law, Psychology, and Morality: The Role of Loss Aversion (OUP, 2014), Forthcoming
42 Pages Posted: 28 Jan 2014 Last revised: 15 Apr 2015
Date Written: January 27, 2014
This is the first chapter of a forthcoming book. It provides a systematic, up-to-date overview of the psychological phenomenon of loss aversion (LA), including a brief historical account, description of Prospect Theory and its critique, empirical evidence of LA, and the role of emotions in LA. The chapter also surveys the literature on the related phenomena of status quo and omission biases, the endowment effect, sunk costs and escalation of commitment, and bounded ethicality. It further examines LA in professional and group decision-making. It addresses the question of whether LA should and could be debiased. Finally, it reviews the literature on the evolutionary roots and neural basis of LA, and describes the impact LA has had on other disciplines, such as political science and economics. The reminder of the book will investigate the complex interactions between loss aversion and the law, as well as their normative implications.
Keywords: Loss aversion, behavioral economics, bounded ethicality, debiasing, endowment effect, escalation of commitment, group decisionmaking, omission bias, prospect theory, status quo bias, sunk costs
JEL Classification: A12, D60, D71, K00
Suggested Citation: Suggested Citation