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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

#101

Post by JackFr »

I've long been skeptical of much of the behavioral economics literature. Not that it's necessarily wrong, but that the experiments are so contrived that they're difficult to generalize. But the pattern we see is, a contrived example with undergraduate students given $20 bills or something, and then cherry picking of anecdotal real world evidence.

It's easy to say that consumers and investors behave irrationally, it's harder to tease out hidden factors in a rational utility/loss function that may depend more on the expected value of one action.

Re: Loss aversion is not supported by the evidence

#102

Post by Spooky23 »

albedoa wrote: post #92
knn wrote: post #31

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-…

He did that all throughout the linked article too: "People do not rate the pain of losing $10 to be more intense than the pleasure of gaining $10." Okay. That's not loss aversion though. "People do not report their favorite sports team losing a game will be more impactful than their favorite sports team winning a game." Same.

How to you rate pain like this? There is no metric for pain/pleasure per dollar.

And there are other factors at play. Often the thrill is the dopamine release when you make these decisions — that’s the pain. If you’re intensely interested, losing $500 in Monopoly or scoring a run in baseball may be felt profoundly.

It all depends on context, not the means by which we measure an outcome.

Re: Loss aversion is not supported by the evidence

#103

Post by vkou »

darkerside wrote: post #66
vkou wrote: post #17

Earlier quoted context omitted.

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.

They are absolutely better at things they are experts on.

You don't hire a plumber to do a colonoscopy.

Re: Loss aversion is not supported by the evidence

#104

Post by Vinnl »

gboudrias wrote: post #94
Vinnl wrote: post #49

Earlier quoted context omitted.

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

I'm afraid I don't know enough to talk about it, but to me it seems more of a collection of observations than a "theory" in the speculative sense. As far as I'm aware though, we have observed that cities with less greenhouse gases tend to be colder, so in that sense lowering CO2 levels "works" to reduce temperature, though we can't speak of global "correctness" until we manage the same with the global temperature. Th…

But if only potential consequences matter regardless of the odds, then you get to the problem of Pascal's Wager [0]: it's best to assume God exists, because the consequences of being wrong and not doing that (going to hell) are far higher than the consequences of being right and doing it.

[0] https://en.wikipedia.org/wiki/Pascal%27s_Wager

Re: Loss aversion is not supported by the evidence

#105

Post by pbhjpbhj »

wpietri wrote: post #88
pbhjpbhj wrote: post #80

Earlier quoted context omitted.

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".

Nah, I think I'm considering non-fiduciary extrinsic value. Which is different to market value and different to preference-value.

For example (fictional), I have an old Pentium CPU, it has zero (general) market value as a functioning object; it has some cultural value as an historic artefact; it may be highly valuable to some geek somewhere, eg to run equipment they might otherwise not be able to run; it has sentimental value to me as my first CPU. My preference is unrelated to the intrinsic value of the item.

Re: Loss aversion is not supported by the evidence

#106

Post by ilyagr »

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…

I think your goal should be not to judge to what degree each side is correct, but to learn a little about what people in the area are doing, what they did in the past, what they find important, and why. That way, there is a lot more you can learn and gain.

Re: Loss aversion is not supported by the evidence

#107

Post by MarkMc »

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…

For me it works like this: Before reading this HN item, my understanding was that 'Loss aversion' was very likely to be correct - let's say 98%. After reading the headline and a few comments I lower the 'chance of correctness' a little to say 93%.

Two points on this approach: 1. My assessment lies on a gradient rather than a simple true/false. 2. I rarely read the source evidence - my assessment relies mostly on the assessment of others.

Re: Loss aversion is not supported by the evidence

#108

Post by gboudrias »

Vinnl wrote: post #104
gboudrias wrote: post #94

Earlier quoted context omitted.

I'm afraid I don't know enough to talk about it, but to me it seems more of a collection of observations than a "theory" in the speculative sense. As far as I'm aware though, we have observed that cities with less greenhouse gases tend to be colder, so in that sense lowering CO2 levels "works" to reduce temperature, though we can't speak of global "correctness" until we manage the same with the global temperature. Th…

But if only potential consequences matter regardless of the odds, then you get to the problem of Pascal's Wager [0]: it's best to assume God exists, because the consequences of being wrong and not doing that (going to hell) are far higher than the consequences of being right and doing it. [0] https://en.wikipedia.org/wiki/Pascal%27s_Wager

Pascal's wager is mainly faulty because it relies on a complete lack of information, unlike climate change where we have some information. If we had any clues at all that any existing gods are benevolent, it would most definitely be the right choice from a pragmatic perspective. If we circle back to climate change as an example, it's hard to be certain but that's still a lot of clues telling us we should do something.

I assume you're not headed into religious debate territory but I don't imagine pragmatists focus much on metaphysical matters (I know I don't).

Re: Loss aversion is not supported by the evidence

#109

Post by mercutio2 »

prabhasp wrote: post #90
jonny_eh wrote: post #24

Earlier quoted context omitted.

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

I was under the impression the endowment effect and loss aversion were synonyms.

Is there a meaningful difference when these are used as psychological terms of art (as opposed to pop psych just-so explanations)?

Re: Loss aversion is not supported by the evidence

#110

Post by darkerside »

vkou wrote: post #103
darkerside wrote: post #66

Earlier quoted context omitted.

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.

They are absolutely better at things they are experts on. You don't hire a plumber to do a colonoscopy.

Not better or worse in terms of value as human beings
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