Acceptable losses: the debatable origins of loss aversion
It is often claimed that negative events carry a larger weight than positive events. Loss aversion is the manifestation of this argument in monetary outcomes. In this review, we examine early studies of the utility function of gains and losses, and in particular the original evidence for loss aversion reported by Kahneman and Tversky (Econometrica 47:263–291, 1979). We suggest that loss aversion proponents have over-interpreted these findings. Specifically, the early studies of utility functions have shown that while very large losses are overweighted, smaller losses are often not. In addition, the findings of some of these studies have been systematically misrepresented to reflect loss aversion, though they did not find it. These findings shed light both on the inability of modern studies to reproduce loss aversion as well as a second literature arguing strongly for it.
The author would like to thank Nathaniel J.S. Ashby, Elias Khalil, and Liat Levontin for their helpful comments.
Compliance with ethical standards
Conflict of interest
The author (EY) declares that he has no conflict of interest.
This article does not contain any studies with human participants or animals performed by any of the authors.
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