The effect of accountability on loss aversion.

This paper investigates the effect of accountability-the expectation on the side of the decision maker of having to justify his/her decisions to somebody else-on loss aversion. Loss aversion is commonly thought to be the strongest component of risk aversion. Accountability is found to reduce the bias of loss aversion. This effect is explained by the higher cognitive effort induced by accountability, which triggers a rational check on emotional reactions at the base of loss aversion, leading to a reduction of the latter. Connections to dual-processing models are discussed.

Does uncertainty cause inertia in decision making? An experimental study of the role of regret aversion and indecisiveness

Previous research has shown that often there is clear inertia in individual decision making---that is, a tendency for decision makers to choose a status quo option. I conduct a laboratory experiment to investigate two potential determinants of inertia in uncertain environments: (i) regret aversion and (ii) ambiguity-driven indecisiveness. I use a between-subjects design with varying conditions to identify the effects of these two mechanisms on choice behavior. In each condition, participants choose between two simple real gambles, one of which is the status quo option. I find that inertia is quite large and that both mechanisms are equally important.

Direct versus indirect channels: Differentiated loss aversion in a high���involvement, non���frequently purchased hedonic product

Purpose ��� This article aims to investigate whether intermediaries reduce loss aversion in the context of a high-involvement non-frequently purchased hedonic product (tourism packages). Design/methodology/approach ��� The study incorporates the reference-dependent model into a multinomial logit model with random parameters, which controls for heterogeneity and allows representation of different correlation patterns between non-independent alternatives. Findings ��� Differentiated loss aversion is found: consumers buying high-involvement non-frequently purchased hedonic products are less loss averse when using an intermediary than when dealing with each provider separately and booking their services independently. This result can be taken as identifying consumer-based added value provided by the intermediaries. Practical implications ��� Knowing the effect of an increase in their prices is crucial for tourism collective brands (e.g. ���sun and sea���, ���inland���, ���green destinations���, ���World Heritage destinations���). This is especially applicable nowadays on account of the fact that many destinations have lowered prices to attract tourists (although, in the future, they will have to put prices back up to their normal levels). The negative effect of raising prices can be absorbed more easily via indirect channels when compared to individual providers, as the influence of loss aversion is lower for the former than the latter. The key implication is that intermediaries can ��� and should ��� add value in competition with direct e-tailing. Originality/value ��� Research on loss aversion in retailing has been prolific, exclusively focused on low-involvement and frequently purchased products without distinguishing the direct or indirect character of the distribution channel. However, less is known about other types of products such as high-involvement non-frequently purchased hedonic products. This article focuses on the latter and analyzes different patterns of loss aversion in direct and indirect channels.

Attitudes towards risk in financial decision making

Doutoramento em Gest��o

Business cycle asymmetries: Loss aversion, sticky prices, and wages

In this chapter, the Smets-Wouters (2003) New Kenesian model is reformulated by introducing the loss aversion utility function developed in chapter two. The purpose of this is to understand how asymmetric real business cycles are linked to asymmetric behavior of agents in a price and wage rigidities set up. The simulations of the model reveal not only that the loss aversion in consumption and leisure is a good mechanism channel for explaining business cycle asymmetries, but also is a good mechanism channel for explaining asymmetric adjustment of prices and wages. Therefore the existence of asymmetries in Phillips Curve. Moreover, loss aversion makes downward rigidities in prices and wages stronger and also reproduces a more severe and persistent fall of the employment. All in all, this model generates asymmetrical real business cycles, asymmetric price and wage adjustment as well as hysteresis.

A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries

In this chapter, an asymmetric DSGE model is built in order to account for asymmetries in business cycles. One of the most important contributions of this work is the construction of a general utility function which nests loss aversion, risk aversion and habits formation by means of a smooth transition function. The main idea behind this asymmetric utility function is that under recession the agents over-smooth consumption and leisure choices in order to prevent a huge deviation of them from the reference level of the utility; while under boom, the agents simply smooth consumption and leisure, but trying to be as far as possible from the reference level of utility. The simulations of this model by means of Perturbations Method show that it is possible to reproduce asymmetrical business cycles where recession (on shock) are stronger than booms and booms are more long-lasting than recession. One additional and unexpected result is a downward stickiness displayed by real wages. As a consequence of this, there is a more persistent fall in employment in recession than in boom. Thus, the model reproduces not only asymmetrical business cycles but also real stickiness and hysteresis.

Do preference reversals generalise? Results on ambiguity and loss aversion

Preference reversals are frequently observed in the lab, but almost all designs use completely transparent prospects, which are rarely features of decision making elsewhere. This raises questions of external validity. We test the robustness of the phenomenon to gambles that incorporate realistic ambiguity in both payoffs and probabilities. In addition, we test a recent explanation of preference reversals by loss aversion, which would also restrict the incidence of reversals outside the lab. According to this account, reversals occur largely because the valuation task endows subject with a gamble, activating loss aversion. This contrasts with the choice task, where the reference point is pre-experiment wealth. We test this explanation by holding the reference point constant. Our evidence suggests that reversals are only slightly diminished with ambiguity. We find no evidence supporting their explanation by loss aversion.

Asymetric price adjustment and loss aversion

Ajuste assim��trico de pre��o �� observado em diversos mercados, notavelmente varejo de gasolina: um aumento de custo �� passado para os consumidores mais r��pido do que uma redu����o. Eu desenvolvo um modelo de busca dos consumidores que gera essa predi����o sob avers��o �� perda. Uma fra����o dos consumidores ignora os pre��os no mercado e pode adquirir informa����o a um custo, o que permite que as firmas tenham lucro com dispers��o de pre��os. Ajuste assim��trico de pre��o emerge se os consumidores s��o aversos a perdas em rela����o a um pre��o de refer��ncia. Custos mais altos tornam os consumidores mais dispostos a procurar, mas tamb��m diminui as chances de encontrar pre��os baixos, gerando uma rela����o custo-pre��o convexa.

A statistical analysis of loss factor to determine the energy losses

Given that the total amount of losses in a distribution system is known, with a reliable methodology for the technical loss calculation, the non-technical losses can be obtained by subtraction. A usual method of calculation technical losses in the electric utilities uses two important factors: load factor and the loss factor. The load factor is usually obtained with energy and demand measurements, whereas, to compute the loss factor it is necessary the learning of demand and energy loss, which are not, in general, prone of direct measurements. In this work, a statistical analysis of this relationship using the curves of a sampling of consumers in a specific company is presented. These curves will be summarized in different bands of coefficient k. Then, it will be possible determine where each group of consumer has its major concentration of points. ��2008 IEEE.

Experimental results for Myopic Loss Aversion

This data is experimental results of "Myopic Loss Aversion: An Experimental Analysis for the Flexibility of Investment and the Frequency of Information Feedback Using Two Period Binomial Stock Model".

Testing reference dependence, loss aversion and diminishing sensitivity in Spanish tourism

Based on Tversky and Kahneman���s Prospect Theory, we test the existence of reference dependence, loss aversion and diminishing sensitivity in Spanish tourism. To do this, we incorporate the reference-dependent model into a Multinomial Logit Model with Random Parameters -which controls for heterogeneity- and apply it to a sample of vacation choices made by Spaniards. We find that the difference between reference price and actual price is considered to make decisions, confirming that reference dependence exists; that people react more strongly to price increases than to price decreases relative to their reference price, which represents evidence in favor of the loss aversion phenomenon; and that there is diminishing sensitivity for losses only, showing convexity for these negative values.

Age-related striatal BOLD changes without changes in behavioral loss aversion

Loss aversion (LA), the idea that negative valuations have a higher psychological impact than positive ones, is considered an important variable in consumer research. The literature on aging and behavior suggests older individuals may show more LA, although it is not clear if this is an effect of aging in general (as in the continuum from age 20 and 50 years), or of the state of older age (e.g., past age 65 years). We also have not yet identified the potential biological effects of aging on the neural processing of LA. In the current study we used a cohort of subjects with a 30 year range of ages, and performed whole brain functional MRI (fMRI) to examine the ventral striatum/nucleus accumbens (VS/NAc) response during a passive viewing of affective faces with model-based fMRI analysis incorporating behavioral data from a validated approach/avoidance task with the same stimuli. Our a priori focus on the VS/NAc was based on (1) the VS/NAc being a central region for reward/aversion processing; (2) its activation to both positive and negative stimuli; (3) its reported involvement with tracking LA. LA from approach/avoidance to affective faces showed excellent fidelity to published measures of LA. Imaging results were then compared to the behavioral measure of LA using the same affective faces. Although there was no relationship between age and LA, we observed increasing neural differential sensitivity (NDS) of the VS/NAc to avoidance responses (negative valuations) relative to approach responses (positive valuations) with increasing age. These findings suggest that a central region for reward/aversion processing changes with age, and may require more activation to produce the same LA behavior as in younger individuals, consistent with the idea of neural efficiency observed with high IQ individuals showing less brain activation to complete the same task.

Muro de las Lagrimas (wall of tears): Living with dementia; family experience of loss and grief

This brief paper will introduce a new theoretical framework or model which may be useful for putting a structure around the theme of ageing and its accompanying grief and loss. It is especially appropriate in the context of counselling families living with dementia, including those individuals with a diagnosis of alzheimers disease. The paper describes the origin of the Spanish expressions of the `wall of tears��� and `house of tears��� and involves an historical narrative of the first author as context to the framework.