loss aversion


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loss aversion

In psychology and economics, the principle that individuals are more likely to make decisions that minimize their losses than maximize their gains, i.e., that a loss is more uncomfortable than an equal-sized gain is pleasurable.
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We will therefore design new mechanisms for these richer allocation problems that exploit insights gained from behavioural game theory like loss aversion.
The psychology of loss aversion versus cash incentive was addressed by asking participants in one group to deposit money and get it back after 6 months of being smoking free.
He concluded, "Our success depends on our ability to remain focused on our clients' main objective, optimal realisation, by applying a total portfolio management approach and making more informed holding and selling decisions thus creating an improved risk-return tradeoff by setting aside principles of loss aversion.
Benartzi and Thaler (1995) model the impact of loss aversion on portfolio preferences among investors who focus on near-term returns.
As Greg Davies, Head of Behavioural and Quantitative Finance and Barclays Wealth explained: "All humans are prone to loss aversion - the tendency to feel the pain of a loss about twice as strongly as we feel pleasure from an equivalent gain.
It is the Kahneman and Tvers ky (1979) who started the work on loss aversion and different investment buying behavior (Benartzi and Thaler 1995, Berkelaar and Kouwenberg 2000, Ait-Sahalia and Brandt 2001 and Gomes and Michaelides 2005).
Factors such as status quo bias (a preference for keeping things the same) and loss aversion (the tendency to prefer avoiding losses more strongly than acquiring gains) interact to stack the odds against employees acting very differently for very long.
Paulo Regis, seminar co-organiser and IBSS Associate Professor, concluded the seminars with an investigation into Financial Regulation with Peter Morgan from the Asian Development Bank Institute in Japan, and a discussion on Further Empirical Evidence on Loss Aversion.
myopic loss aversion, and decision-making under almost zero-cost borrowing.
Loss aversion - "feeling the pain of a loss more than the pleasure of gaining something" - could be used to improve young people's expectations and achievement, according to an education think-tank.