I'm picking through the author's paper and I don't buy this conclusion. I have a bone to pick with his evidence: for example, he makes a comparison between "willingness to expend time to drive to obtain an accidentally left behind unused, new-condition notebook (vs. willingness to expend driving
time to obtain a new notebook at no financial cost)". The extent of the former he denotes as WTP-Retain and the latter WTP-Obtain. Even if these two values are equal in a study, that doesn't contradict the principle of loss aversion. In the case where a subject has already left behind his/her notebook, the loss has already happened. How can this measure loss aversion when the loss has already occurred? I think it's good the authors are trying to tease apart action vs inaction from loss/gain but these conclusions don't seem valid to me.
Loss aversion is not supported by the evidence
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Re: Loss aversion is not supported by the evidence
#32Interesting how their review omits the paper that has conducted the most direct test of loss aversion:
https://pubsonline.informs.org/doi/abs/10.1287/mnsc.1070.071...
Also they claim the body of evidence doesn’t find support for loss aversion. But a meta analysis on the topic does in fact find support for loss aversion (albeit the magnitude is probably smaller than originally thought):
Re: Loss aversion is not supported by the evidence
#33Earlier quoted context omitted.
Calculated or not, loss aversion is loss aversion. The principle, thinking or motive behind diversification isn't investment growth. It's to prevent total loss. I'm other words, loss aversion. You said nothing about the Ikea effect. Here's more. Why do people stay in abusive relationships with individuals & companies? I've put in so much, can't back off now. Scammers know and use this to great effect. Once you've pai…
This is not loss aversion and is explicitly covered in the article.
Whether my example was stated explicitly in the article is irrelevant.
What's important is the primary motive behind an action.
In fact, strategy in military, business and soccer is divided into two - offensive and defensive.
Offensive strategies are primarily motivated by gain. Defensive - by turf protection, prevent loss of market, or prevent a goal.
Both strategies use similar, virtually the same tools. And like loss aversion the difference is simply motive.
If China learns that Iceland is planning an attack on them and decides to attack first, it's a defensive strategy.
Again, the key is motive. It doesn't matter what the action is, what matters is why it's done.
If I kill someone for the heck of it (gain), it's called murder. If instead, it's to protect myself (loss aversion) it's called self defense.
Limiting loss aversion to just financial behavior is a myopic view of the subject.
Re: Loss aversion is not supported by the evidence
#34The loss aversion is almost trivially explained by the marginal value theorem. The subjective value of money is around log(money), that is, a meaningful change takes an extra 0 in the paycheck or in the price tag.
So, if you have $200, getting $100 one thing, losing $100 is way worse, since log(200)=2.30, log(200)-log(100)=0.3, log(300)-log(200)=0.18. A potential loss of $100 must be rewarded by a gain of $200 to "feel" worthwhile if you already have $200, since log(400)-log(200)=log(200)-log(100).
Re: Loss aversion is not supported by the evidence
#35This article is essentially a press release for the author's own paper: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 Which itself is a part of a series of articles in JCP debating the issue: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 The definitive statement made by this article's headline isn't really supported by the evidence presented in the papers. Rather, the state of affairs seems to…
That's a great summation. It seems as though there's confusion as to what constitutes loss aversion. IIRC, the original paper by Kahneman, Knetsch, and Thaler [0] talked about losing something you had. Meanwhile, the posted argument talks about whether someone is more or less likely to buy something if the price goes up or down. These are such different situations! The first is losing something you have, the second i…
How well does that [the original] replicate? Is there non-self-reported data for it?
Re: Loss aversion is not supported by the evidence
#36This article is essentially a press release for the author's own paper: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 Which itself is a part of a series of articles in JCP debating the issue: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 The definitive statement made by this article's headline isn't really supported by the evidence presented in the papers. Rather, the state of affairs seems to…
Did not even have to go to check the sources: > And people are not particularly likely to sell a stock they believe has even odds of going up or down in price (in fact, in one study I performed, over 80 percent of participants said they would hold on to it ). He refuted himself right there, in the article.
Note: What people say they'll do and what they end up doing are usually different.
Actual investor behavior is sell winning investment, and hold on to losing investment until loses triple. And sell for significant loss.
Recent Tesla short sellers come to mind.
Re: Loss aversion is not supported by the evidence
#37This article is essentially a press release for the author's own paper: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 Which itself is a part of a series of articles in JCP debating the issue: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 The definitive statement made by this article's headline isn't really supported by the evidence presented in the papers. Rather, the state of affairs seems to…
Are you reading the same article as me? As they mentioned:
> Loss aversion has been represented as a fundamental principle. Loss aversion is not understood as the idea that losses can or sometimes loom larger than gains, but that losses inherently, perhaps inescapably, outweigh gains. For example, Kahneman, Knetch, and Thaler (1990, p. 1326) describe loss aversion as "the generalization that losses are weighted substantially more than objectively commensurate gains." In a similar fashion, other researchers do not qualify the idea of loss aversion; Tversky and Kahneman (1986, p. S255) state that "the response to losses is more extreme than the response to gains;" and Kahneman and Tversky (1984, p. 342) state "the value function is … considerably steeper for losses than for gains."
The authors are refuting "loss aversion" as Kahneman et al is describing it.
> (i.e. they don't present an alternative theory to explain the papers that purport to demonstrate "loss aversion")
Why do they need to? The paper isn't about trying to explain when losses or gains are most impactful; the paper is about whether or not there's a clear tendency.
Re: Loss aversion is not supported by the evidence
#38This article is essentially a press release for the author's own paper: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 Which itself is a part of a series of articles in JCP debating the issue: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 The definitive statement made by this article's headline isn't really supported by the evidence presented in the papers. Rather, the state of affairs seems to…
Are you reading the same article as me? As they mentioned: > Loss aversion has been represented as a fundamental principle. Loss aversion is not understood as the idea that losses can or sometimes loom larger than gains, but that losses inherently, perhaps inescapably, outweigh gains. For example, Kahneman, Knetch, and Thaler (1990, p. 1326) describe loss aversion as "the generalization that losses are weighted subst…
Big words don't count as evidence. The article brings absolutely no new information to the table. Heck, I think this article's a clickbait.
The basic principle behind loss aversion is simple.
What's the primary motive behind an action - Running away or running towards? Prevention or gain.
For instance. Yesterday an article about American child care was on HN.
American parents are acting primarily to PREVENT injury, discomfort or death of their children. That's action motivated by loss aversion.
Japanese, maya parents still want safety for their children but independence of their kids is a primary motivator for their action. In other words gain.
I think the author is confused about something. I want more money and I don't want to lose the ones I have. Both feelings aren't mutually exclusive. However at the point of decision I could be swayed more by greed or by fear.
If a site, seller or investment is shady, fear wins. I'll protect myself. If not, greed or gain could win in that instance.
I could speed down towards a party one moment. And a near miss could make me reconsider and slow down. Both modes occurred on the same journey. No grammar by some clickbaity author would change that.
Re: Loss aversion is not supported by the evidence
#39This article is essentially a press release for the author's own paper: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 Which itself is a part of a series of articles in JCP debating the issue: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 The definitive statement made by this article's headline isn't really supported by the evidence presented in the papers. Rather, the state of affairs seems to…
Did not even have to go to check the sources: > And people are not particularly likely to sell a stock they believe has even odds of going up or down in price (in fact, in one study I performed, over 80 percent of participants said they would hold on to it ). He refuted himself right there, in the article.
> Did not even have to go to check the sources
Yeah, it would be terrible if you read through 59 pages of well-cited, well-explained text and tried to understand what the author is saying. Might as well judge everything from one sentence in an online article written for popular audiences.
> He refuted himself right there, in the article.
That example is showing an example of Status Quo Bias that is completely orthogonal to losses/gains: People prefer inactivity to activity. If you construct an experiment where doing nothing constitutes the "loss" (e.g. keeping an item) and doing something is the "gain" (e.g. obtaining a new item) then you would expect people to prefer the first choice. For loss aversion to be a general principle you need to decouple it from the status quo bias.
Re: Loss aversion is not supported by the evidence
#40Earlier quoted context omitted.
Are you reading the same article as me? As they mentioned: > Loss aversion has been represented as a fundamental principle. Loss aversion is not understood as the idea that losses can or sometimes loom larger than gains, but that losses inherently, perhaps inescapably, outweigh gains. For example, Kahneman, Knetch, and Thaler (1990, p. 1326) describe loss aversion as "the generalization that losses are weighted subst…
Big words don't count as evidence. The article brings absolutely no new information to the table. Heck, I think this article's a clickbait. The basic principle behind loss aversion is simple. What's the primary motive behind an action - Running away or running towards? Prevention or gain. For instance. Yesterday an article about American child care was on HN. American parents are acting primarily to PREVENT injury, d…
> The article brings absolutely no new information to the table.
Did you read the paper? It's not a paper that "brings new information to the table", it's a paper which presents recent experiments and tries to show that there is little scientific evidence of loss aversion.
> The basic principle behind loss aversion is simple.
Huh? I don't understand what you're saying? You're saying that "loss aversion" is simple, but then you give examples of losses not being universally more impactful than gains? What you're describing here is exactly the point of the authors: Both modes are important
> … swayed more by greed or by fear.
And you should be aware that "loss aversion" is very careful to not talk about the psychological process behind. Loss aversion is not about greed, fear or any feeling and/or instinct. Loss aversion is a measurable effect. None of the papers that claim that loss aversion is a general principle claims that "greed is stronger than love" or anything similar to that. In fact, they are very "chicken" and just shrug it away.