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Loss aversion coupled with myopia has been shown to explain macroeconomic phenomena, such as the equity premium puzzle. [17] Loss aversion to kinship is an explanation for aversion to inheritance tax. [18]
On a broader scale: Consider an administration debating the implementation of a controversial reform, and that such a reform yields a small chance for a widespread revolt. "[T]he disutility induced by loss aversion," even with minute probabilities of said insurrection, will dissuade the government from moving forward with the reform. [13]
Loss aversion, where the perceived disutility of giving up an object is greater than the utility associated with acquiring it. [73] (see also Sunk cost fallacy) Pseudocertainty effect, the tendency to make risk-averse choices if the expected outcome is positive, but make risk-seeking choices to avoid negative outcomes. [74]
A famous loss-aversion experiment is to offer a subject two options: They can either either receive something like $30 in guaranteed money — or a coin flip where they can receive either $100 or ...
One of the chapters touches on a theory called loss aversion, which is a psychological phenomenon first attributed to Daniel Kahneman and Amos Tversky. The theory is generally understood to mean ...
By David Lovell, Managing Director – Head of Marketing Behavioral Finance – Actionable Insights One of the more well-known behavioral biases is loss aversion. Loss aversion is a common trait ...
The correlation between the two theories is so high that the endowment effect is often seen as the presentation of loss aversion in a riskless setting. However, these claims have been disputed and other researchers claim that psychological inertia , [ 20 ] differences in reference prices relied on by buyers and sellers, [ 3 ] and ownership ...
The Arrow–Pratt measure of relative risk aversion (RRA) or coefficient of relative risk aversion is defined as [11] = = ″ ′ (). Unlike ARA whose units are in $ −1, RRA is a dimensionless quantity, which allows it to be applied universally.