11–20 of 27 posts
It's interesting how these (especially pertaining behavioral economics and behavioral studies in general) create compound ideas from combinations of various fundamental ideas. Sometimes, it adds value. Other times, it simply obfuscates the truth.
In summary, what is often described as "loss aversion" is actually just an expected property of diminishing marginal utility, and does not require a new term to explain it. Loss aversion, instead, is state dependence that makes you feel worse about state X if you came from state X+1, and better about it if you came from state X-1 (assuming X is, say, wealth). It seems to me that "loss aversion" might be reconstituted…
If you come by and swipe a quarter off my desk, I'm going to be way more pissed than if you came by my desk and left a quarter.
The delta of my being pissed is way bigger than the DMU of +/- $.25, or my feeling if I'd parted ways with that $.25 in a variety of other manners.
I don't know if what I'm experiencing is or isn't "loss aversion". But it's not "just DMU".
This is an important distinction. In my experience, people equate "loss aversion" with "unwilling departure of money" and "windfall" -- i.e. being unwilling to be swindled or ripped off.
Ugh. For a person with $1,000,000 in assets, the difference between +/- $100 in marginal utility is almost zero. Yet all the psychological studies will show that said person HATES losing $100 much more than they like gaining $100. It's a major effect. Heck, if you even give people the same amount of money but FRAME it as a loss versus a gain, people change their behavior. The marginal utility is identical! Loss avers…
A- take a person and promise her a substantial reward against completing a set of tasks. Measure stress level during tasks execution
B- take a person and give her the substantial reward up-front, but take back part of the reward for each task she fails. Measure stress level during tasks execution.
Ariely experiments showed stress was significantly higher with subjects that were in Experiment B. So much so that one of the subjects took the money and ran away by jumping out of a window. Ariely attributed the difference in stress levels to "Aversion to loss".
There is a difference between the scenario depicted by the experiments, and the cases in the OP's article. IN the article the author compares DMU as it changes from, say, 10K->2K vs 10K->18K, and argues that the latter has less impact than the former. Whereas in Ariely's experiments it is really comparing 2K-10K vs 10K-2K and showing that even if the Delta is the same, and both points are the same, subjects still experienced a different level of emotional distress due a visceral aversion to loss.
I disagree. If you come by and swipe a quarter off my desk, I'm going to be way more pissed than if you came by my desk and left a quarter. The delta of my being pissed is way bigger than the DMU of +/- $.25, or my feeling if I'd parted ways with that $.25 in a variety of other manners. I don't know if what I'm experiencing is or isn't "loss aversion". But it's not "just DMU". This is an important distinction. In my…
Civilization depends on an equilibrium where I don't steal your property, and you do not steal mine. Civilization flourishes when everyone is in the cooperate-cooperate quadrant of the prisoner's dilemma. When someone steals from you, they have violated this very basic principle. If you accept this defection without responding, then they will likely only defect more in the future. Thus maintaining the equilibrium requires you to respond harshly to even small defections.
I disagree. If you come by and swipe a quarter off my desk, I'm going to be way more pissed than if you came by my desk and left a quarter. The delta of my being pissed is way bigger than the DMU of +/- $.25, or my feeling if I'd parted ways with that $.25 in a variety of other manners. I don't know if what I'm experiencing is or isn't "loss aversion". But it's not "just DMU". This is an important distinction. In my…
I don't think your anger is a result of loss aversion, but rather the fact that someone committed predation upon you. Civilization depends on an equilibrium where I don't steal your property, and you do not steal mine. Civilization flourishes when everyone is in the cooperate-cooperate quadrant of the prisoner's dilemma. When someone steals from you, they have violated this very basic principle. If you accept this de…
Ugh. For a person with $1,000,000 in assets, the difference between +/- $100 in marginal utility is almost zero. Yet all the psychological studies will show that said person HATES losing $100 much more than they like gaining $100. It's a major effect. Heck, if you even give people the same amount of money but FRAME it as a loss versus a gain, people change their behavior. The marginal utility is identical! Loss avers…
You give an example where DMU doesn't explain the phenomenon, so we can see loss aversion. He might be happy to accept your example. But that doesn't mean that in general you don't have to point out that they're distinct, because your case is rather extreme.
Earlier quoted context omitted.
I don't think your anger is a result of loss aversion, but rather the fact that someone committed predation upon you. Civilization depends on an equilibrium where I don't steal your property, and you do not steal mine. Civilization flourishes when everyone is in the cooperate-cooperate quadrant of the prisoner's dilemma. When someone steals from you, they have violated this very basic principle. If you accept this de…
yeah... but all the examples in the article involved "magically appearing money". How does that fit into our understanding of civilization?
The change in utility by going from 2k up to 10k (~ +1.3) is significantly more than the change in utility by going from 18k down to 10k (~ -0.55).
In the simple model provided the change in utility caused by a change in wealth, positive or negative, depends on your starting wealth. This is different to the "pop definition" of loss aversion, which seems to be making a claim that the ratio of the change in utility between gains and losses is approximately independent of your starting point.
I should point out that I don't know what the correct formulation of loss aversion is, it just seems to me that the argument presented is a bit weak.