Why The Nearly Of Import Consider Inwards Behavioral Decision-Making Is A Fallacy

From Scientific American, July 31:

The pop thought that avoiding losses is a bigger motivator than achieving gains is non supported past times the evidence

Loss aversion, the thought that losses are to a greater extent than psychologically impactful than gains, is widely considered the most of import thought of behavioral decision-making too its sis plain of behavioral economics. To illustrate the importance loss aversion is accorded, Daniel Kahneman, winner of the 2002 Nobel Prize inwards economics, wrote inwards his 2011 best-selling book, Thinking Fast too Slow, that “the concept of loss aversion is surely the most meaning contribution of psychology to behavioral economics.” As around other illustration, when Richard Thaler was awarded the 2017 Nobel Prize inwards economics, the phrase “loss aversion” appeared 24 times inwards the Nobel Committee’s description of his contributions to science.

Why has such profound importance been attributed to loss aversion? Largely, it is because it is thought to reverberate a cardinal truth most human beings—that nosotros are to a greater extent than motivated past times our fears than past times our aspirations. This conclusion, it is thought, has implications for almost every appear of how nosotros alive our lives.

However, equally documented inwards a recent critical review of loss aversion past times Derek Rucker of Northwestern University too myself, published inwards the Journal of Consumer Psychology, loss aversion is essentially a fallacy. That is, in that place is no full general cognitive bias that leads people to avoid losses to a greater extent than vigorously than to pursue gains. Contrary to claims based on loss aversion, toll increases (ie, losses for consumers) produce non touching on consumer behaviour to a greater extent than than toll decreases (ie, gains for consumers). Messages that frame an appeal inwards price of a loss (eg, “you volition lose out past times non buying our product”) are no to a greater extent than persuasive than messages that frame an appeal inwards price of a arrive at (eg, “you volition arrive at past times buying our product”).

People produce non charge per unit of measurement the hurting of losing $10 to last to a greater extent than intense than the pleasance of gaining $10. People produce non study their favorite sports squad losing a game volition last to a greater extent than impactful than their favorite sports squad winning a game. And people are non peculiarly probable to sell a stock they believe has fifty-fifty odds of going upward or downwards inwards toll (in fact, inwards 1 study I performed, over lxxx percentage of participants said they would concur on to it).

To last sure it is truthful that large fiscal losses tin last to a greater extent than impactful than large fiscal gains, only this is non a cognitive bias that requires a loss aversion explanation, only perfectly rational behavior. If losing $10,000 agency giving upward the roof over your caput whereas gaining $10,000 agency going on an extra vacation, it is perfectly rational to last to a greater extent than concerned amongst the loss than the gain. Likewise, in that place are other situations where losses are to a greater extent than consequential than gains, only these involve specific explanations non blanket statements most a loss aversion bias....MORE

Possibly related:
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Ogilvy & Mather UK of Britain too Northern Republic of Ireland Vice-Chairman, Rory Sutherland, Talks Behavioral Economics
Behavioral Finance at The World's First Stock Exchange
Nobel Laureate Richard H. Thaler on the End of Behavioral Finance
Investing: "Have the Behaviorists Gone Too Far?"

The Rory Sutherland slice is especially worthwhile.