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Loss Averse Behavior

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Abstract

A behavioral condition of loss aversion is proposed and tested. Forty-nine students participated in experiments on binary choices among lotteries involving small scale real gains and losses. At the aggregate level, a significant proportion of the choices are in the direction predicted by loss aversion. Individuals can be classified as loss averse (28 participants), gain seeking (12), and unclassified (9). A comparison with risk behavior for binary choices on lotteries involving only gains shows that risk attitudes vary across these domains of lotteries. A gender effect is also observed: proportionally more women are loss averse. In contrast to the predictions of comonotonic independence, the size of common outcomes has systematic influence on choice behavior.

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Correspondence to Horst Zank.

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JEL Classification: D81, C91

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Brooks, P., Zank, H. Loss Averse Behavior. J Risk Uncertainty 31, 301–325 (2005). https://doi.org/10.1007/s11166-005-5105-7

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