A Note on Receptiveness to Loss in Structured Investment

22 Pages Posted: 9 May 2017

See all articles by Maya Lazar

Maya Lazar

College of Management Academic Studies

Amir Levkowitz

College of Management Academic Studies

Amit Oren

College of Management Academic Studies

Doron Sonsino

Ben-Gurion University of the Negev; Center for Academic Studies

Date Written: October 8, 2016

Abstract

The close to zero interest rates past the economic crisis open possibility to directly test for loss aversion in framed field structured investment tasks. We use a Web-survey platform to compare the willingness to invest in LOSS-GAIN deposits that pay positive return G in favorable market conditions, but bring a loss L in the complementary states, to the valuation of parallel GAIN-ONLY deposits that pay small positive return G-|L| in the favorable scenario but bring zero return in the opposite case. While common models of choice predict that investors should refrain from LOSS-GAIN designs but may strongly approve the GAIN-ONLY, the participants rank the LOSS-GAIN significantly higher and show similarly strong willingness to invest in both versions. The results suggest that loss aversion may attenuate in structured investment context, where losses come up with larger compensating gains.

Keywords: Limited loss aversion; Structured investment, Prospect Theory

JEL Classification: D81; G11; C93

Suggested Citation

Lazar, Maya and Levkowitz, Amir and Oren, Amit and Sonsino, Doron and Sonsino, Doron, A Note on Receptiveness to Loss in Structured Investment (October 8, 2016). Available at SSRN: https://ssrn.com/abstract=2964899 or http://dx.doi.org/10.2139/ssrn.2964899

Maya Lazar

College of Management Academic Studies ( email )

Elie Wiesel St 2
Rishon LeTsiyon
Israel

Amir Levkowitz

College of Management Academic Studies ( email )

Elie Wiesel St 2
Rishon LeTsiyon
Israel

Amit Oren

College of Management Academic Studies ( email )

Elie Wiesel St 2
Rishon LeTsiyon
Israel

Doron Sonsino (Contact Author)

Center for Academic Studies ( email )

Ha-Yotsrim 2
Or Yehuda, 6021816
Israel

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

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