Isn't the bias in loss aversion the fact that losing 50 bucks out of 100 isn't symmetric to winning 50 bucks from a capital of 100? If I lose 50, I need to double my new capital to recover my former position, but when I win 50, I "only" need to lose 33% of my new capital. When I lose, relatively speaking, I'm further away than when I win.
Loss aversion is not supported by the evidence
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Re: Loss aversion is not supported by the evidence
#62Earlier quoted context omitted.
> 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 b…
> What's at stake here? Reputation, respect, pride, even money.
Ego. People primarily lie to themselves, in order to retain the coherent (constructed) reality/continuity of their life. (c.f. cognitive dissonance)
Re: Loss aversion is not supported by the evidence
#63This 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.
That's the problem with any of these social theories. Losing what? Gaining what? We're lacking a clear definitions of terms. I know it's a trope, but it really is just so unscientific.
Re: Loss aversion is not supported by the evidence
#64Isn't the bias in loss aversion the fact that losing 50 bucks out of 100 isn't symmetric to winning 50 bucks from a capital of 100? If I lose 50, I need to double my new capital to recover my former position, but when I win 50, I "only" need to lose 33% of my new capital. When I lose, relatively speaking, I'm further away than when I win.
That would be risk aversion; the fact that marginal utility of money/wealth/ gains decreases as one gets more wealthy.
Loss aversion is the “fact” that “buy now to save 10$” is less motivating than “buy now to avoid 10$ surcharge”, and that “here’s 100$; if the coin tails, you lose $50” is more distressful than “here’s $50; if the coin heads, you gain another $50”.
Re: Loss aversion is not supported by the evidence
#65Contrarian science is important if it can successfully refute a claim, but has it in this case? Scientific American is sharing how the sausage is made (peer review science), potentially before the final product is ready.
Re: Loss aversion is not supported by the evidence
#66Hmm... 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…
There is no alternative to 1) or 2). You either have to follow consensus of the experts, or, to go contrary to consensus, you must understand the consensus well enough to be one of the experts. Down any other road lies pop-sci nonsense. It's incredibly easy to be a wrong contrarian, when you don't actually understand what you are attacking.
What you call popsci nonsense is the way most of the people on this planet live. Making decisions based on the available data and living with the fact that we may be wrong. Nerds are a special class, and not better nor worse.
Re: Loss aversion is not supported by the evidence
#67Contrarian science is important if it can successfully refute a claim, but has it in this case? Scientific American is sharing how the sausage is made (peer review science), potentially before the final product is ready.
It's not refuting a claim so much as narrowing it. I think we could afford to do a lot more of this, especially in sciences where we've made questionable amounts of progress.
Re: Loss aversion is not supported by the evidence
#68The 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…
>Professional risk takers in the financial markets are more tolerant of losses, probably because they do not respond emotionally to every fluctuation.
Or more plausibly, because they're richer, and the utility they stand to lose is smaller.
Re: Loss aversion is not supported by the evidence
#69This 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…
Thanks for the phrase "incessant overgeneralization" -- I didn't even realize I was looking for that. It seems that this is something the social sciences are inherently at risk of, given how closely the topics are to our everday lives.
Over-generalization is common beyond the social sciences as well. It is often found in the basis given for false dichotomies, which are not uncommon in discussions of how to write software. It is also apparent in many of the claims made by clickbait titles.
Re: Loss aversion is not supported by the evidence
#70I don't find the listed examples convincing. Especially: > 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). How naïve is that? We're not interested in what people said they would do. We want to know what they did!
Have you paid attention to either of the past US market busts, in 2000-2001 and 2008? People overwhelmingly ride it into the ground because of two things:
- The fear of realizing a loss - The unrealistic expectation of upside
Also, you'd be hard pressed to find a stock IRL that you could predict in advance as "50/50" and see what participants do, wouldn't you?