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Loss aversion is not supported by the evidence

blogs.scientificamerican.com

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Re: Loss aversion is not supported by the evidence

#41

Post by modells »

With the paradox of choice, most people are hypersatured with (the paradox of) choices, opportunities and distractions... so any “loss” seems inconsequential at the time because no one seems any more valuable than another. The key fallacy of this attitude is that the world is a small place, life is finite and will end. It doesn’t imply feverishly hustling every tiny opportunity, but filtering and carefully exploring choices with a sound decision framework.

Also, most people rarely make rationally-beneficial decisions based on other a myriad of fears, prejudices, laziness, negative cognitive distortions, distractions or inadequate future-planning. Worse, most people are sold on hype, feelings, gossip, peer testimonials and appearance when they can’t be bothered to do due-diligence.

OTHO of gain avoidance/scarcity: You can put a “free” sign on a decent household good, set it out, and it won’t move... put a price-tag of $100 on and watch it get “stolen.”

tl;dr: The human condition is messy and imperfect... there’s no firm solution except thorough qualitative hypothesis testing via experiences.

Re: Loss aversion is not supported by the evidence

#42

Post by kashyapc »

epx wrote: post #34

The 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 "fe…

Something along those lines is what I recall reading in Kahneman's book. I just double-checked the 'Loss Aversion' chapter, and indeed he writes, and elaborates further:

"What is the smallest gain that I need to balance an equal chance to lose $100? For many people the answer is about $200, twice as much as the loss. The "loss aversion ratio" has been estimated in several experiments and is usually in the range of 1.5 to 2.5. This is an average, of course; some people are much more loss averse than others. Professional risk takers in the financial markets are more tolerant of losses, probably because they do not respond emotionally to every fluctuation. When participants in an experiment were instructed to "think like a trader," they became less loss averse and their emotional reaction to losses (measured by a physiological index of emotional arousal) was sharply reduced. [...]"

Re: Loss aversion is not supported by the evidence

#43

Post by WalterBright »

vezycash wrote: post #38
judofyr wrote: post #37

Earlier 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…

To me, loss aversion was amply illustrated by a "King of Cars" episode, a reality show at a car dealership. The manager would hand out $100 bills to the salesmen in the morning, with the proviso that if they sold a car that day, they got to keep the C note on top of their commission.

He'd found they worked much harder to retain the note once it was in their hands, than if he offered a bonus of $100 at the end of the day.

Re: Loss aversion is not supported by the evidence

#44

Post by edanm »

throwawaymath wrote: post #8

Hmm... So here is an interesting thought experiment. Suppose you take a person with some appreciable intelligence (at least average) but no particular knowledge about a certain topic. In this instance, we'll let that topic be psycology. Now we present this person with an unfortunate dilemma. For a particular hypothesis, they observe a significant amount of peer reviewed literature asserting empirical evidence in the…

> The fundamental dilemma is this: how should this person examine the available evidence to maximize their chances of coming to the correct conclusion? Should they abstain from trying to discern the truth of the matter, and strike out any opinion they could have as unqualified?

> There are a few dimensions here which (from my view) make the dilemma nearly intractable unless you 1) abstain from an opinion

I think the majority of the time, you should abstain. I mean, you can certainly debate things, it's fun to do and improves your thinking. But you should be sure of very few "controversial" things. You should be very ready to change your mind about most things. There is value in just saying "I'm not sure" about most things.

How do I define controversial? Well yeah this becomes a circular problem very quickly. As others have said, practically speaking, you usually don't really need to use the latest social science research for practical purposes. Sometimes you do - but hopefully then you are an expert.

However, sometimes there are things you need to decide. E.g., what diet maximizes your health/fitness goals? A classic case where there is a huge lack of expert consensus, etc. In these situations, I usually try to defer to who sounds smartest in general to me, but keep a very open mind to the idea that I might be totally wrong.

Re: Loss aversion is not supported by the evidence

#45

Post by dosy »

On the face of it, and with the benefit of hindsight if the paper's presented theory is valid, if loss aversion as dominant motivation were a thing wouldn't human civilization have never progressed beyond hunter gatherer nomads?

Doesn't the fact that we keep growing and progressing as a species even tho the getting of these gains exposes us to risks, not just in the getting there, but once we have arrived, the "curse/paradox of development", suggest that loss aversion is not a majority principle of human behavior?

But... maybe...gain attraction / gain pursuit is a general principle...perhaps of all life, not just ours? Maybe that's one of the characteristics that tautologically has to define life. Life exists in an uncertain environment and couldn't continue to do so without taking risks / experimenting into that unknown.

Re: Loss aversion is not supported by the evidence

#46

Post by vezycash »

judofyr wrote: post #40
vezycash wrote: post #38

Earlier quoted context omitted.

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, bu…

As complex as gravity and electricity are, the underlying principles are simple. Same with loss aversion. Money isn't the only or biggest motivator.

Take a good common example of loss aversion - admitting being wrong. Why do people find it difficult to admit that they are wrong?

What's at stake here? Reputation, respect, pride, even money.

100 scientists vs Einstein is a classic example of this. Pointless wars have been been fought because someone wouldn't admit being wrong. The Iraqi, Vietnam wars are good examples.

Your reaction to this issue is another.

Limiting loss aversion to just economic behavior betrays lack of understanding of the topic.

Re: Loss aversion is not supported by the evidence

#47

Post by nothrabannosir »

judofyr wrote: post #40
vezycash wrote: post #38

Earlier quoted context omitted.

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, bu…

> Did you read the paper? … Huh? … you should be aware that …

I have no skin in this one but I would like to call this out: these comments make an argument combative. It pushes people up a tree and makes it hard to focus on the facts. Imagine user vezycash actually was swayed by your argument; how easy would it be for them to say, hey, you’re right? Pretty hard after all those comments, because it ties in their pride with their viewpoints and makes changing their point of view humiliating rather than enlightening. The conversation is now a battle, and admitting fault is losing face.

I’m calling this out now but by no means is it specific to you; it happens all the time. My request to anyone here is: please leave all those phrases out. “You should...”, “did you even...” etc. The argument works just as well without them. It makes it much easier for someone to say, hey, I guess you’re right! And isn’t that what we all want, in the end? ;)

Thanks.

Re: Loss aversion is not supported by the evidence

#48

Post by keypusher »

vezycash wrote: post #38
judofyr wrote: post #37

Earlier 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…

Loss aversion specifically refers to "people's tendency to prefer avoiding losses to acquiring equivalent gains". It's not just the general idea that people are averse to losses, it's about how people value gains and losses differently.

Re: Loss aversion is not supported by the evidence

#49

Post by Vinnl »

gboudrias wrote: post #30
throwawaymath wrote: post #8

Hmm... So here is an interesting thought experiment. Suppose you take a person with some appreciable intelligence (at least average) but no particular knowledge about a certain topic. In this instance, we'll let that topic be psycology. Now we present this person with an unfortunate dilemma. For a particular hypothesis, they observe a significant amount of peer reviewed literature asserting empirical evidence in the…

Your question is certainly interesting in an epistemological sense, in a way it is the basis of relativism. Having read Larry Laudan recently however, I'm a big fan of his pragmatism which trumps the question a bit: just use whatever works. In this case, we don't all need to be aware of loss aversion, and really I suspect barely anyone was using it in a practical sense. A pragmatist might say that it was only ever a…

So what if the "certain topic" is something with no immediately obvious thing that "works", e.g. climate change?
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