Loss aversion (simply) does not materialize for smaller losses

Abstract

Loss aversion, the argument that losses are given more weight than gains, has been recently shown to be absent in small losses. However, a series of studies by Mrkva et al. (2020) appear to demonstrate the existence of loss aversion even for smaller losses. We re-ran Mrkva et al.’s decision tasks after removing features of the task that differentiated losses from the gains, particularly asymmetries in sizes of gains and losses, an increasing order of losses, and status quo effects. The results show that we replicate Mrkva et al.’s (2020) findings in their original paradigm with online participants, yet in five studies where gains and losses were symmetrically presented in random order (n = 2,001), we find no loss aversion for small amounts, with loss aversion surfacing very weakly only for average losses of $40 (mean λ = 1.16). We do find loss aversion for higher amounts such as $100 (mean λ = 1.54) though it is not as extreme as previously reported. Furthermore, we find weak correlation between the endowment effect and loss aversion, with the former effect existing simultaneously with no loss aversion. Thus, when items are presented symmetrically, significant loss aversion emerges only for large losses, suggesting that it cannot be argued that (all) “losses loom larger than gains.”

Prospect theory’s loss aversion is robust to stake size

“…Likewise, not accepting the prospect was presented as the status quo, which might additionally inflate loss aversion. Taking account of these possible biases, Zeif and Yechiam (2022) found no loss aversion for small stakes (and less for large stakes). None of their explanations applies to our findings and, hence, the (carefully designed) experiments in Zeif and Yechiam do not explain our findings.…”

“…A recent study by Zeif and Yechiam (2022) reevaluated the evidence for loss aversion in Mrkva et al ( 2020) and argued that it was due to properties of the choice lists they used. In their choice lists, losses were presented in increasing order, and if subjects would switch between accepting and rejecting a prospect in the middle of the list (a bias often observed in choice lists), then they would appear loss-averse.…”

“…Both the lab and the field report abundant evidence supporting it (for overviews, see Brown et al, 2021;Fox and Poldrack, 2014). However, several authors (e.g., Erev et al, 2008;Erev, 2008, 2013;Gal and Rucker, 2018;Zeif and Yechiam, 2022) have challenged the generality of loss aversion. They claim that it is contextdependent and can be turned on and off by varying, among other things, the size of the stakes and using choices.…”

“…They do, however, assume linear utility and no probability weighting. Their results are also subject to the criticism ofZeif and Yechiam (2022).https://doi.org/10.1017/jdm.2023.2 Published online by Cambridge University Press…”

Behavioral economics enhancers

“…The cognitive enhancement effect of losses thus seems to be pertinent for small losses for which there is no loss aversion (Zeif and Yechiam, 2022). Importantly, the behavioral economics literature has often explained the effect of difficult goals on performance as evidence of loss aversion due to the implied loss frame incorporated by goals (e.g., Allen et al, 2017;Corgnet et al, 2018).…”