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Journal of Risk and Uncertainty

, Volume 25, Issue 3, pp 233–249 | Cite as

An Experimental Test of Loss Aversion

  • Ulrich Schmidt
  • Stefan Traub
Article

Abstract

This paper experimentally investigates a preference condition for loss aversion in the framework of cumulative prospect theory (CPT). We propose the concepts of absolute and relative loss premiums in order to measure the extent of loss aversion and to derive notions of increasing, constant, and decreasing loss aversion. While in only one of the 28 choice situations analyzed loss neutrality and loss seeking can be rejected, about 51% of all choices are loss averse and, due to the large extent of loss aversion revealed by these choices, the average loss premium is positive for most choice situations. Female subjects exhibit both a more frequent occurrence and a larger extent of loss aversion.

loss aversion loss premium cumulative prospect theory gender differences 

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Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  1. 1.Christian-Albrechts-Universität zu KielGermany

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