Dr. Lukasz Walasek on “How to Make Loss Aversion Disappear and Reverse: Tests of the Decision by Sampling Origin of Loss Aversion.”

Psychological Research Stories

In behavioral economics, there is a theory which explores and describes how individuals pick between particular risky decisions. This is prospect theory, and “The theory states that people make decisions based on the potential value of losses and gains rather than the final outcome, and that people evaluate these losses and gains using certain heuristics.” Within this theory there is a concept that is referred to as loss aversion. Simply put, loss aversion relates to a strong preference that individuals have towards avoiding losses than towards achieving gains.

In this episode, we explore the fascinating topic of loss aversion by discussing some research that provides some important insight on the topic. I speak with Dr. Lukasz Walasek about his article “How to Make Loss Aversion Disappear and Reverse: Tests of the Decision by Sampling Origin of Loss Aversion.”

Abstract

“One of the most robust empirical findings in the behavioral sciences is loss aversion—the finding that losses loom larger than gains. We offer a new psychological explanation of the origins of loss aversion in which loss aversion emerges from differences in the distribution of gains and losses people experience. In 4 experiments, we tested this proposition by manipulating the range of gains and losses that individuals saw during the process of eliciting their loss aversion. We were able to find loss aversion, loss neutrality, and even the reverse of loss aversion. (PsycINFO Database Record (c) 2015 APA, all rights reserved)”

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