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Loss aversion is not what we think it is

basilhalperin.com

21–27 of 27 posts

Re: Loss aversion is not what we think it is

#21

I'd also add that loss aversion's supposed "reference dependence" is addressed by a more fundamental concept, a cognitive bias: anchoring[1]. 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. 1. https://en.wikipedia.org/wik…

It makes sense to me that particularly 'salient' things get their own dedicated category, despite being a subset of some other category.

Consider racism. Most (or at least much) of the time it's really just a more salient and specific version of the 'in-group bias'. And I'd argue that on an academic level, researching and discussing it as the latter is vastly preferable to using the much more loaded concept of racism. But on a societal level it perhaps makes sense that we treat 'racism' as a category in itself.

Personally I think discussing whether x is 'just' a subset of y is less valuable than carefully delineating the contexts in which we use particular terms. For example, I wish that on a societal level we'd consider 'innate' differences a bit of a taboo, but that on an academic level we could go wild researching, say, IQ differences of particular populations without it being coopted by politically motivated individuals.

I vaguely recall Steven Pinker (almost?) making that argument in The Blank Slate, and even though I've never read Anathem, I understand one theme is the idea of having academics locked up and doing research similar to orders of monks isolating themselves from the world.

At the risk of this becoming (even more of) a ramble, I can't help but wonder what effect our increasing interconnectedness and the inability to do something in isolation has on all of this.

Re: Loss aversion is not what we think it is

#22
His argument would be correct if the effect size were tiny, i.e. people got as much satisfaction from gaining $102 as from losing $100, but it's a much bigger effect than that. E.g. I will spend half an hour searching for a lost $5 widget (e.g. a lens cap or an iPhone recharging cable... ok a $20 widget) when I could easily earn far more money doing almost anything else (or keep my extremely expensive free time).

Also, recouping a loss is far more satisfying than an equivalent windfall, and DMU completely fails to explain that.

Re: Loss aversion is not what we think it is

#23
post #21

I'd also add that loss aversion's supposed "reference dependence" is addressed by a more fundamental concept, a cognitive bias: anchoring[1]. 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. 1. https://en.wikipedia.org/wik…

It makes sense to me that particularly 'salient' things get their own dedicated category, despite being a subset of some other category. Consider racism. Most (or at least much) of the time it's really just a more salient and specific version of the 'in-group bias'. And I'd argue that on an academic level, researching and discussing it as the latter is vastly preferable to using the much more loaded concept of racism…

It's not as much a matter of determining whether "x is 'just' a subset of y", as it is a matter of finding the most fundamental truth about something.

For instance, if you state that (paraphrasing) racism is wrapped up in 'in-group bias' and it turns out that people are actually racist because of something in our DNA (similar to being afraid of spiders) or something like that (NB: completely contrived, to provide context related to your comment), the you would have lost the truth in a higher abstraction layer, by hiding the underlying principle.

Now, abstraction is a helpful tool, but it should be used to abstract things to the level necessary to convey an exact message. Einstein might have said, "Abstract things as high and low as necessary, while preserving the truth, but no higher or lower."... but in the meantime, I made that quote up.

Take, for instance, my "Anchoring" example. There are more fundamental things that are going on beneath the "Anchoring" abstraction. Perhaps a specific part of the human psyche, which is also responsible for recognizing patterns (e.g., Reticular Activating System) is also responsible for the mental constructs that lead to such a cognitive bias. But, once that science is understood sufficiently enough to be trusted, a concept like "Anchoring" is a helpful delineation.

In the aforementioned case of racism that I contrived, the abstraction layer of "racism" and the perceived lower level abstraction "in-group bias" hides the truth, and this fallacious abstraction actually becomes, as Noam Chomsky might suggest, a part of our mental grammar, which prevents us from ever learning the truth, unless the abstraction is broken in our minds.

Re: Loss aversion is not what we think it is

#25
post #21

Earlier quoted context omitted.

It makes sense to me that particularly 'salient' things get their own dedicated category, despite being a subset of some other category. Consider racism. Most (or at least much) of the time it's really just a more salient and specific version of the 'in-group bias'. And I'd argue that on an academic level, researching and discussing it as the latter is vastly preferable to using the much more loaded concept of racism…

It's not as much a matter of determining whether "x is 'just' a subset of y", as it is a matter of finding the most fundamental truth about something. For instance, if you state that (paraphrasing) racism is wrapped up in 'in-group bias' and it turns out that people are actually racist because of something in our DNA (similar to being afraid of spiders) or something like that (NB: completely contrived, to provide con…

I agree with you within the 'academic' context, but that doesn't address my main issue of whether this same approach can or should be used in a 'broader' context.

Could it be that on societal level creating a separate category like 'racist' is important and valuable, even if it's technically a 'fallacious' abstraction? We don't always have the time to properly get to the bottom of things, assuming all of us are even capable of doing so, so we're going to grasp for salient categories anyways.

It vaguely reminds me of the discussions here about functional programming versus object-oriented programming. Alongside the heated debate for and against either approach (and the definitions of the 'true' version of each), there's always someone who points out something like 'closures are just a poor man's objects', and 'objects are just a poor man's closures'.

Even if, for the sake of argument, the differences between FP and OP are not as fundamental or clear-cut as they seem, I'd argue that for me and many others these discussions are very useful. I'd never get out of my 'OOP box' to explore FP if it wasn't contrasted and put in a whole separate category and given a bunch of tantalizing pros that pull me to investigate.

Isn't 'truth' really just another abstraction, but one we cannot (yet) dive into to find the underlying 'truth'? What I mean is, we stop at a certain point not only because it's where we end up at for the time being, but also because it's a useful abstraction.

And to be clear, I'm arguing this primarily in the context of the already very murky and messy field of the social sciences / psychology, where definitions are a lot less definitive than in physics or mathematics, and where they have a much more immediate effect on society.

(honestly, I'm not sure I'm disagreeing with you, and I'm sorry if I'm perhaps not making much sense. I'm not usually this openly... explorative in my comments here. Your comment(s) just tickled my brain in a good way.)

Re: Loss aversion is not what we think it is

#26

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?

We use thought experiments about magically appearing money, but the aim would be to later try to apply those ideas to more realistic cases of, for instance, risk-taking.

Re: Loss aversion is not what we think it is

#27
post #25

Earlier quoted context omitted.

It's not as much a matter of determining whether "x is 'just' a subset of y", as it is a matter of finding the most fundamental truth about something. For instance, if you state that (paraphrasing) racism is wrapped up in 'in-group bias' and it turns out that people are actually racist because of something in our DNA (similar to being afraid of spiders) or something like that (NB: completely contrived, to provide con…

I agree with you within the 'academic' context, but that doesn't address my main issue of whether this same approach can or should be used in a 'broader' context. Could it be that on societal level creating a separate category like 'racist' is important and valuable, even if it's technically a 'fallacious' abstraction? We don't always have the time to properly get to the bottom of things, assuming all of us are even…

Hey @mercer

Thanks for the reply. I just now saw this (haven't been nearly as active on here for the past week).

I enjoyed reading your reply. I had just one comment back:

> Isn't 'truth' really just another abstraction, but one we cannot (yet) dive into to find the underlying 'truth'?

It's not, because 'truth' is a logical construct, an a priori kind of concept, so whatever that 'truth' is that we find underneath what was once thought to be truth would just be a more fundamental truth (e.g., we discover that photons are actually an imbalance in another dimension or something).

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