ISSN 1671-3710
CN 11-4766/R

›› 2009, Vol. 17 ›› Issue (04): 788-794.

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Loss Aversion in Behavior Economics

LIU Huan;LIANG Zhu-Yuan;LI Shu   

  1. Institute of Psychology, Chinese Academy of Sciences, Beijing 100101, China
  • Received:2008-10-13 Revised:1900-01-01 Online:2009-07-15 Published:2009-07-15
  • Contact: LI Shu

Abstract: Loss aversion, which meaned that people were, on average, roughly twice as sensitive to losses as to gains, demonstrated that people have a strong psychological and behavioral tendency to avoid losses than the same amounts of gains in risky and riskless decision. We first introduced the definition of loss aversion briefly from theoretic and behavioral prospective, and the different research paradigms used in risky and riskless fields. Loss aversion was accepted as both a description and an explanation of the phenomenon, it was widely used in economic filed to explain abnormal phenomenon, such as endowment effect, status quo bias, equity premium puzzle, the winner’s curse, and so on. Researchers did not only pay attention to the mediators of loss aversion, which can be divided into two categories: emotional attachment and cognitive perspective, but also focused on the mechanism of loss aversion. However, there were some problems with loss aversion which should be addressed in future research, such as the relationship with endowment effect and the difference from risk aversion. As loss aversion was an extensive-existed phenomenon, an associative understanding of the mechanism of loss aversion from emotional attachment, cognitive perspective and cognitive process would assist individual to recognize, predict and intervene the economic loss and irrational decisions caused by loss aversion.

Key words: loss aversion, value function, endowment effect