Loss aversion is not supported by the evidence • Hacker News Board

Re: Loss aversion is not supported by the evidence

#81

Post by kashyapc » Sun, Aug 05, 2018, 1:23 PM UTC

mrob wrote: post #68

kashyapc wrote: post #42

Earlier quoted context omitted.

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.

Good reminder. Although subconsciously I realize that, I didn't remind myself that way and after re-reading that paragraph, I thought: "hmm, maybe I should up 'risk-seeking' dial a bit more"—which can be evaluated independently, though, depending on one's "risk profile".

Re: Loss aversion is not supported by the evidence

#82

Post by brewmarche » Sun, Aug 05, 2018, 1:25 PM UTC

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…

I don’t think that’s true. Marginal utility can explain the directional component but not the reference point component.

Let’s take the example from the comment above. A car salesman gets $100 in the morning and has to give it back in the evening if he doesn’t sell enough cars. Compare that to just handing out $100 if he’s successful in the evening. From an expected utility view both of these arrangements are equivalent.

Loss aversion argues that they’re not, because the salesman’s reference point for loss/gain shifts after obtaining ownership of the $100.

Re: Loss aversion is not supported by the evidence

#83

Post by Cacti » Sun, Aug 05, 2018, 1:26 PM UTC

gbear605 wrote: post #73

Cacti wrote: post #70

Earlier quoted context omitted.

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?

It seems like it would be fairly simple to design an stock market simulation (with real money payouts) to test this.

Either way it is not realistic. People losing a few cents on what they know is a simulation is far, far different than people watching their life savings evaporate in an uncertain environment.

Besides, the point of that particular study isn't a stock, it's that they have a 50-50 chance of losing money they were just given. The stock is just a placeholder for anything.

Re: Loss aversion is not supported by the evidence

#84

Post by albertgoeswoof » Sun, Aug 05, 2018, 1:41 PM UTC

dang wrote: post #20

nyolfen wrote: post #2

psychology as a discipline is not looking so hot these days

Maybe not, but please don't post unsubstantive comments to Hacker News.

I think this is a fair comment, it’s relevant and sparks an interesting debate about psychology as an overall discipline. Not sure it’s fair to call it unsubstantive.

Re: Loss aversion is not supported by the evidence

#85

Post by wild_preference » Sun, Aug 05, 2018, 1:43 PM UTC

judofyr wrote: post #53

nothrabannosir wrote: post #47

Earlier quoted context omitted.

> 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…

Yeah, I see how this turns an argument combative and that wasn't my intention. I don't think there's anything wrong with vezycash's point of view, in fact I completely agree with most/all of his points :-) There is something to be said about "Did you read the paper?" though. We have here an article where an author has published a rather large article (59 pages) and done a substantial amount of research (quoting over…

Agreed, especially when their point is that something is self-evident in the comments section of an article that specifically goes into great length to argue otherwise.

Re: Loss aversion is not supported by the evidence

#86

Post by wpietri » Sun, Aug 05, 2018, 1:45 PM UTC

dosy wrote: post #45

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…

Not really. Loss aversion doesn't mean complete refusal to face loss or complete lack of interest in gains, it just means that we weight losses more heavily than gains. I also don't think anybody's claiming it's a dominant motivation, just a common characteristic.

Re: Loss aversion is not supported by the evidence

#87

Post by NPMaxwell » Sun, Aug 05, 2018, 1:54 PM UTC

judofyr wrote: post #53

nothrabannosir wrote: post #47

Earlier quoted context omitted.

> 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…

Yeah, I see how this turns an argument combative and that wasn't my intention. I don't think there's anything wrong with vezycash's point of view, in fact I completely agree with most/all of his points :-) There is something to be said about "Did you read the paper?" though. We have here an article where an author has published a rather large article (59 pages) and done a substantial amount of research (quoting over…

Could you post a link to the 59-page article you are referring to? Thanks

Re: Loss aversion is not supported by the evidence

#88

Post by wpietri » Sun, Aug 05, 2018, 1:57 PM UTC

pbhjpbhj wrote: post #80

vezycash wrote: post #15

The Ikea effect is a form of loss aversion. This alone shows that someone hasnt done their homework. "A bird in hand is worth two in the bush" is a popular saying with its equivalent in almost every culture. Diversification which is studied, recommended and practiced by almost every investor, CEO, child... Is related to loss aversion. There are many more real life examples of loss aversion.

I hadn't heard of The IKEA effect: >"The IKEA effect is a cognitive bias in which consumers place a disproportionately high value on products they partially created." // Which is a weird turn of phrase, as almost all IKEA stuff is already fully created, you just fit it together. I guess they mean something you put effort in to realising. I'm not sure I agree, I think people preference stuff they took part in the prod…

I think you're confusing two meanings of value. There's an intellectual assessment of market price, a "how much could I sell this for" calculation. But there's also the observed, behavioral notion of value, which is derived from the actions people take. What you call "preference" is what people often mean by "value".

Re: Loss aversion is not supported by the evidence

#89

Post by dgacmu » Sun, Aug 05, 2018, 2:13 PM UTC

taneq wrote: post #54

nothrabannosir wrote: post #47

Earlier quoted context omitted.

> 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…

Just to back this up, 'don't imply that someone didn't read the article' is actually in the HN guidelines.

In this case, however, the person asked if the poster had read the underlying scientific paper - which is not the same as the linked popular press article. It's a legit question to help frame the discussion, though with tone issues that suggest a gentler way of asking would be helpful.

Re: Loss aversion is not supported by the evidence

#90

Post by prabhasp » Sun, Aug 05, 2018, 2:28 PM UTC

jonny_eh wrote: post #24

btn wrote: post #7

This 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…

That is the endowment effect https://en.m.wikipedia.org/wiki/Endowment_effect