11 ms·

Loss aversion is not supported by the evidence

248 points by onuralp 8y ago

nyolfen 8y ago
psychology as a discipline is not looking so hot these days
- jadedhacker 8y ago
  I want to see what some other commentators who are more knowledgeable about the field say. This is a pretty striking attack against a central theory in... Scientific American? Without citing a wealth of evidence with detailed citations? I find the logic of the argument appealing, finding no inborn bias towards gain nor loss outside of what could be derived by reason would be a very nice thing to say about the future of humanity. I read D. Kahneman's book Thinking Fast and Slow a number of years back and it did present some pretty clear looking graphs demonstrating loss aversion of 2:1 iirc. I've since lost my copy due to a friend's "borrowing". ;) Certain other elements of his book have come into question, including priming. I'm eagerly waiting to see how the cookie crumbles here.
  - justamus 8y ago
    I agree here. The article mentions ideological complacency, but complacency isn't enough to award 2 Nobel prizes. Loss aversion is, to my layman understanding, a well enough established principle that an article like this without some indication of widespread shift in expert opinion isn't going to change my view of it.
- eksemplar 8y ago
  This isn’t psychology though, it’s economics. It’s one if the most utilized sciences in the public and political world, and it’s really horrible at predicting anything, at least if you look at the statistics of how rarely it’s right. Loss aversion, and risk aversion as well, are themselves the economic pseudoscience that are based on the psychology of compulsive habits. This article doesn’t really depict the research paper though. The author isn’t saying loss aversion isn’t real, just that it’s been over popularized in a way that isn’t founded in evidence. It also doesn’t address the other economic pseudoscience on the field, so you could quite literally write the opposite article as well. Ironically when it was likey the media representation of “loss aversion” that broke the term to begin with.
- dang 8y ago
  Maybe not, but please don't post unsubstantive comments to Hacker News.
  - albertgoeswoof 8y ago
    I think this is a fair comment, it’s relevant and sparks an interesting debate about psychology as an overall discipline. Not sure it’s fair to call it unsubstantive.
- jonny_eh 8y ago
  This is just a disagreement within a discipline, it's healthy.
everdev 8y ago
> People do not report their favorite sports team losing a game will be more impactful than their favorite sports team winning a game. For fans of winning teams (Warriors, Patriots, etc.) I'm not sure if this is true. They're expected to win, so watching them win can feel like nervous relief or ambivalence but watching them lose can feel like disappointment. I think we see loss aversion in soccer too where teams will often play "not to lose" and "park the bus" rather than risk pushing forward and trying to win the game but being vulnerable to counter attacks. In video games however most seem to favor aggressive styles of play and loss aversion is likely an instant loss. I'm sure as with most social behavior loss aversion varies and depends on a complex set of conditions. I'm sure in some contexts it's certainly at play though.
- nsmog767 8y ago
  I anecdotally agree with this. Since I learned about the concept of loss aversion, I've noticed instances where I have to consciously force myself to acknowledge opportunity cost, or the tangible loss dominates in my head.
ggm 8y ago
Economics as a pseudo science of emphatic statements about human behaviour is looking pretty tragic.
- jl2718 8y ago
  Behavioral economics exists only because psychology has completely lost objectivity and focused on agenda. This article is a good example, uses cognitive ‘proof’ for a behavioral hypothesis. Trash.
btn 8y ago
This article is essentially a press release for the author's own paper: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 Which itself is a part of a series of articles in JCP debating the issue: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 The definitive statement made by this article's headline isn't really supported by the evidence presented in the papers. Rather, the state of affairs seems to be that "loss aversion" has been the victim of incessant overgeneralisation. It's a very simple hypothesis about human behaviour that plays nicely into a lot of interesting (and therefore publishable) narratives. This has lead people to blindly accept the general hypothesis of loss aversion without enough critical investigation of its manifestation. The authors don't really refute "loss aversion" (i.e. they don't present an alternative theory to explain the papers that purport to demonstrate "loss aversion"), but rather they refute the pop-psychology belief that it's a general principle of human behaviour.
- deleted 8y ago
  [deleted]
- dwaltrip 8y ago
  Thanks for the phrase "incessant overgeneralization" -- I didn't even realize I was looking for that. It seems that this is something the social sciences are inherently at risk of, given how closely the topics are to our everday lives.
  - mannykannot 8y ago
    Over-generalization is common beyond the social sciences as well. It is often found in the basis given for false dichotomies, which are not uncommon in discussions of how to write software. It is also apparent in many of the claims made by clickbait titles.
  - kelnage 8y ago
    I’d say it’s true of most knowledge, regardless of domain. AI seems like a great candidate in computer science, for example.
throwawaymath 8y ago
Hmm... So here is an interesting thought experiment. Suppose you take a person with some appreciable intelligence (at least average) but no particular knowledge about a certain topic. In this instance, we'll let that topic be psycology. Now we present this person with an unfortunate dilemma. For a particular hypothesis, they observe a significant amount of peer reviewed literature asserting empirical evidence in the affirmative. They don't have any real familiarity with any individual papers, but they can understand that there's an established consensus. On the other hand they are given an article like this one, which mounts a critical refutation of all the established literature. Furthermore, this lone paper is presented to our stalwart examiner amidst the zeitgeist of a reproducibility crisis. Thus we have a mountain of peer reviewed but undigestible evidence on one side, and one readily digestible paper on the other which specifically rebuts the mountain of evidence. The fundamental dilemma is this: how should this person examine the available evidence to maximize their chances of coming to the correct conclusion? Should they abstain from trying to discern the truth of the matter, and strike out any opinion they could have as unqualified? Should they read through the most comprehensive surveys of available evidence to come to a full understanding? Should they take the new, contrarian paper at face value? There are a few dimensions here which (from my view) make the dilemma nearly intractable unless you 1) abstain from an opinion, or 2) become a subject matter expert. The cloud of the reproducibility crisis is a first dimension of uncertainty - not only does that muddy the waters for existig research, but we also have to be careful not take contradictory research at face value simply because it's contrarian. For another, we have to figure out how to weight the reliability of evidence against our own time. It's tempting to discount the evidence of existing research if an especially compelling critique is released, because we can more easily read it and follow its arguments. It seems like this is enormously difficulty all around. How do we rate the critical correctness of differing amounts of conflicting literature published under academic uncertainty?
- jadedhacker 8y ago
  Usually the solution is to have a graduate student write a review paper. ;)
- jjeaff 8y ago
  In your thoughts experiment, make your refuting paper a slick Netflix documentary and you have the state we live in now.
mark_edward 8y ago
relevant paper by author of this article http://www.albacharia.ma/xmlui/bitstream/handle/123456789/31953/jdm06002.pdf?sequence=1 http://www.albacharia.ma/xmlui/bitstream/handle/123456789/31...
boron1006 8y ago
After reading the paper that this article was based on, this article and title feel sensationalized. It's not that the evidence of loss aversion was wrong, or statistically invalid, but just may point to different underlying factors or psychological mechanisms. However, this is just a couple of researcher's opinions, and tomorrow a response article may come out saying that loss aversion IS supported by evidence. To me, this is the sign of a healthy science.
vezycash 8y ago
The Ikea effect is a form of loss aversion. This alone shows that someone hasnt done their homework. "A bird in hand is worth two in the bush" is a popular saying with its equivalent in almost every culture. Diversification which is studied, recommended and practiced by almost every investor, CEO, child... Is related to loss aversion. There are many more real life examples of loss aversion.
- watwut 8y ago
  Calculated strategies to prevent loss are not loss aversion as psychologists use it. Neither is preventing catastrophic "I spend the rest of life in jail" loss.
  - vezycash 8y ago
    Calculated or not, loss aversion is loss aversion. The principle, thinking or motive behind diversification isn't investment growth. It's to prevent total loss. I'm other words, loss aversion. You said nothing about the Ikea effect. Here's more. Why do people stay in abusive relationships with individuals & companies? I've put in so much, can't back off now. Scammers know and use this to great effect. Once you've paid, you'll keep paying. Why do investors rush to sell winning stocks but stick stubbornly to losing losing stocks or trades? The network effect is powerful because of loss aversion. "All my contacts, friends, pictures are in..." so I can't switch. LOSS AVERSION CHEAT SHEET. Ask anyone for the reason behind an action. If the sentence begins with or is dominated by, "I don't want" or "I didn't want..." the action was motivated by loss aversion.
    - Jweb_Guru 8y ago
      This is not loss aversion and is explicitly covered in the article.
      - vezycash 8y ago
        Whether my example was stated explicitly in the article is irrelevant. What's important is the primary motive behind an action. In fact, strategy in military, business and soccer is divided into two - offensive and defensive. Offensive strategies are primarily motivated by gain. Defensive - by turf protection, prevent loss of market, or prevent a goal. Both strategies use similar, virtually the same tools. And like loss aversion the difference is simply motive. If China learns that Iceland is planning an attack on them and decides to attack first, it's a defensive strategy. Again, the key is motive. It doesn't matter what the action is, what matters is why it's done. If I kill someone for the heck of it (gain), it's called murder. If instead, it's to protect myself (loss aversion) it's called self defense. Limiting loss aversion to just financial behavior is a myopic view of the subject.
Negative1 8y ago
The author is the one "peddling" the idea that loss aversion is a phalacy but at least he seems to (ironically) recognize that his argument is in itself part of the social/argumentative part of science. Even so, this article seems to draw conclusions as if they were widely held beliefs (I'm not qualified to speak to these claims until I do my own research).
neilwilson 8y ago
Hypothesis: the set of people who want to see loss aversion refuted intersection (sic) heavily with the set of people who want to raise taxes
knn 8y ago
I'm picking through the author's paper and I don't buy this conclusion. I have a bone to pick with his evidence: for example, he makes a comparison between "willingness to expend time to drive to obtain an accidentally left behind unused, new-condition notebook (vs. willingness to expend driving time to obtain a new notebook at no financial cost)". The extent of the former he denotes as WTP-Retain and the latter WTP-Obtain. Even if these two values are equal in a study, that doesn't contradict the principle of loss aversion. In the case where a subject has already left behind his/her notebook, the loss has already happened. How can this measure loss aversion when the loss has already occurred? I think it's good the authors are trying to tease apart action vs inaction from loss/gain but these conclusions don't seem valid to me.
- albedoa 8y ago
  He did that all throughout the linked article too: "People do not rate the pain of losing $10 to be more intense than the pleasure of gaining $10." Okay. That's not loss aversion though. "People do not report their favorite sports team losing a game will be more impactful than their favorite sports team winning a game." Same.
  - Spooky23 8y ago
    How to you rate pain like this? There is no metric for pain/pleasure per dollar. And there are other factors at play. Often the thrill is the dopamine release when you make these decisions — that’s the pain. If you’re intensely interested, losing $500 in Monopoly or scoring a run in baseball may be felt profoundly. It all depends on context, not the means by which we measure an outcome.
- MarkMc 8y ago
  Well the test subject has the option to 'undo' the loss. So the loss can be seen as optional for the purposes of the experiment. Could we settle the argument by reading the definition of loss aversion to 10 people and asking each person whether the author's experiment measures loss aversion?
davetannenbaum 8y ago
Interesting how their review omits the paper that has conducted the most direct test of loss aversion: https://pubsonline.informs.org/doi/abs/10.1287/mnsc.1070.0711 https://pubsonline.informs.org/doi/abs/10.1287/mnsc.1070.071... Also they claim the body of evidence doesn’t find support for loss aversion. But a meta analysis on the topic does in fact find support for loss aversion (albeit the magnitude is probably smaller than originally thought): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3189088 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3189088
epx 8y ago
The loss aversion is almost trivially explained by the marginal value theorem. The subjective value of money is around log(money), that is, a meaningful change takes an extra 0 in the paycheck or in the price tag. So, if you have $200, getting $100 one thing, losing $100 is way worse, since log(200)=2.30, log(200)-log(100)=0.3, log(300)-log(200)=0.18. A potential loss of $100 must be rewarded by a gain of $200 to "feel" worthwhile if you already have $200, since log(400)-log(200)=log(200)-log(100).
- kashyapc 8y ago
  Something along those lines is what I recall reading in Kahneman's book. I just double-checked the 'Loss Aversion' chapter, and indeed he writes, and elaborates further: "What is the smallest gain that I need to balance an equal chance to lose $100? For many people the answer is about $200, twice as much as the loss. The "loss aversion ratio" has been estimated in several experiments and is usually in the range of 1.5 to 2.5. This is an average, of course; some people are much more loss averse than others. Professional risk takers in the financial markets are more tolerant of losses, probably because they do not respond emotionally to every fluctuation. When participants in an experiment were instructed to "think like a trader," they became less loss averse and their emotional reaction to losses (measured by a physiological index of emotional arousal) was sharply reduced. [...]"
  - mrob 8y ago
    >Professional risk takers in the financial markets are more tolerant of losses, probably because they do not respond emotionally to every fluctuation. Or more plausibly, because they're richer, and the utility they stand to lose is smaller.
    - kashyapc 8y ago
      Good reminder. Although subconsciously I realize that, I didn't remind myself that way and after re-reading that paragraph, I thought: "hmm, maybe I should up 'risk-seeking' dial a bit more"—which can be evaluated independently, though, depending on one's "risk profile".
modells 8y ago
With the paradox of choice, most people are hypersatured with (the paradox of) choices, opportunities and distractions... so any “loss” seems inconsequential at the time because no one seems any more valuable than another. The key fallacy of this attitude is that the world is a small place, life is finite and will end. It doesn’t imply feverishly hustling every tiny opportunity, but filtering and carefully exploring choices with a sound decision framework. Also, most people rarely make rationally-beneficial decisions based on other a myriad of fears, prejudices, laziness, negative cognitive distortions, distractions or inadequate future-planning. Worse, most people are sold on hype, feelings, gossip, peer testimonials and appearance when they can’t be bothered to do due-diligence. OTHO of gain avoidance/scarcity: You can put a “free” sign on a decent household good, set it out, and it won’t move... put a price-tag of $100 on and watch it get “stolen.” tl;dr: The human condition is messy and imperfect... there’s no firm solution except thorough qualitative hypothesis testing via experiences.
dosy 8y ago
On the face of it, and with the benefit of hindsight if the paper's presented theory is valid, if loss aversion as dominant motivation were a thing wouldn't human civilization have never progressed beyond hunter gatherer nomads? Doesn't the fact that we keep growing and progressing as a species even tho the getting of these gains exposes us to risks, not just in the getting there, but once we have arrived, the "curse/paradox of development", suggest that loss aversion is not a majority principle of human behavior? But... maybe...gain attraction / gain pursuit is a general principle...perhaps of all life, not just ours? Maybe that's one of the characteristics that tautologically has to define life. Life exists in an uncertain environment and couldn't continue to do so without taking risks / experimenting into that unknown.
- wpietri 8y ago
  Not really. Loss aversion doesn't mean complete refusal to face loss or complete lack of interest in gains, it just means that we weight losses more heavily than gains. I also don't think anybody's claiming it's a dominant motivation, just a common characteristic.
  - dosy 8y ago
    Interesting perspective. It doesn't really relate to how I think of it. Useful to know that's how you think.
james1071 8y ago
a suggestion - loss aversion might be a manifestation of something else - namely poor decision making under stress.The loss causes the stress, which causes the poor decision making.
jl2718 8y ago
I think the whole point of Thaler’s assertion is that loss aversion is a type 1 bias, so will be demonstrated despite whatever people say when using their type 2 reasoning.
lolc 8y ago
I don't find the listed examples convincing. Especially: > And people are not particularly likely to sell a stock they believe has even odds of going up or down in price (in fact, in one study I performed, over 80 percent of participants said they would hold on to it). How naïve is that? We're not interested in what people said they would do. We want to know what they did!
- Cacti 8y ago
  Have you paid attention to either of the past US market busts, in 2000-2001 and 2008? People overwhelmingly ride it into the ground because of two things: - The fear of realizing a loss - The unrealistic expectation of upside Also, you'd be hard pressed to find a stock IRL that you could predict in advance as "50/50" and see what participants do, wouldn't you?
  - gbear605 8y ago
    It seems like it would be fairly simple to design an stock market simulation (with real money payouts) to test this.
    - Cacti 8y ago
      Either way it is not realistic. People losing a few cents on what they know is a simulation is far, far different than people watching their life savings evaporate in an uncertain environment. Besides, the point of that particular study isn't a stock, it's that they have a 50-50 chance of losing money they were just given. The stock is just a placeholder for anything.
- hn_throwaway_99 8y ago
  I not only don't find his examples particularly convincing, but in many cases I don't even think they are really examples of loss aversion to begin with. I've always interpreted loss aversion as "It's worse to lose something you've already attained than to miss out on something you never had in the first place." His example of "Messages that frame an appeal in terms of a loss (eg, “you will lose out by not buying our product”) are no more persuasive than messages that frame an appeal in terms of a gain (eg, “you will gain by buying our product”)" is extremely weak IMO. In both cases the consumer never had the product to begin with. The author is trying to argue FOMO is the same thing as loss aversion, which on the contrary, FOMO is really greed.
sacado2 8y ago
Isn't the bias in loss aversion the fact that losing 50 bucks out of 100 isn't symmetric to winning 50 bucks from a capital of 100? If I lose 50, I need to double my new capital to recover my former position, but when I win 50, I "only" need to lose 33% of my new capital. When I lose, relatively speaking, I'm further away than when I win.
- tomp 8y ago
  That would be risk aversion; the fact that marginal utility of money/wealth/ gains decreases as one gets more wealthy. Loss aversion is the “fact” that “buy now to save 10$” is less motivating than “buy now to avoid 10$ surcharge”, and that “here’s 100$; if the coin tails, you lose $50” is more distressful than “here’s $50; if the coin heads, you gain another $50”.
Dowwie 8y ago
Contrarian science is important if it can successfully refute a claim, but has it in this case? Scientific American is sharing how the sausage is made (peer review science), potentially before the final product is ready.
- darkerside 8y ago
  It's not refuting a claim so much as narrowing it. I think we could afford to do a lot more of this, especially in sciences where we've made questionable amounts of progress.
darkerside 8y ago
This article is getting flamed pretty good. Here's another perspective I've learned as a software developer. Building on incorrect abstractions is much more damaging than redundancy in your code. It obscures the underlying design that you're trying to unearth and model, leading others down a path with a weak foundation. I think we're well served to narrow the scope of any scientific finding beyond what might seem reasonable. The human mind is a pattern identification machine, and it finds false positives in science as often as it does in religion.
tirumaraiselvan 8y ago
Loss aversion, as it stands today, can be falsified in certain situations so its obviously not writ in stone. What is required is even more study of the context where it still holds.
dosy 8y ago
> However, this process advantages incumbent theories over challengers for a number of reasons, including confirmation bias, social proof, ideological complacency, and the vested interests of scientists whose reputations and even sense of self are tied to existing theories. A consequence is scientific inertia, where weak or ill-founded theories take on a life of their own, sometimes even gaining momentum despite evidence that puts their veracity in doubt. A wonderful, concise summary of some of the human obstacles to the progress of ideas, theories, stories and models about people and the world, scientific in nature or not.
andybak 8y ago
I do struggle sometimes to see how one could do proper science in the field of psychology. It always seems like every experiment contains multiple hidden assumptions, a myriad of uncontrolled-for variables and has more alternative hypotheses that fit the data than you could shake a stick at. Is this me being all Dunning Kruger? Is it my positivist bias obscuring my vision? Have I misunderstood the nature of the scientific method or missed some major aspect of practical epistemology? I sincerely hope so as the alternative explanation regarding the nature and visibility of the emperor's couture is rather upsetting. I do genuinely think I am probably - at least partially - incorrect on this. But I would like some help in shaking my sense of unease.
danschumann 8y ago
Losing money makes you a loser, gaining money is normal, so beyond the actual event, there are identity things at play. In their terms, spending more on a product or less, is not actually touching that identity, because both are just being a spender. I agree about the consequences part: losing equals no roof vs winning equals extra vacation. I think the rest is about the identity that comes with losing.
JackFr 8y ago
I've long been skeptical of much of the behavioral economics literature. Not that it's necessarily wrong, but that the experiments are so contrived that they're difficult to generalize. But the pattern we see is, a contrived example with undergraduate students given $20 bills or something, and then cherry picking of anecdotal real world evidence. It's easy to say that consumers and investors behave irrationally, it's harder to tease out hidden factors in a rational utility/loss function that may depend more on the expected value of one action.
MarkMc 8y ago
The article's author David Gal claims that 'loss aversion' is a fallacy. But in the book Thinking Fast and Slow, Daniel Kahneman says that the following experiment demonstrates loss aversion. ----- People are randomly given one of two problems: Probem A: In addition to whatever you own, you have been given $1,000. You are now asked to choose one of these options: 50% chance to win $1,000 OR get $500 for sure Problem B: In addition to whatever you own, you have been given $2,000. You are now asked to choose one of these options: 50% chance to lose $1,000 OR lose $500 for sure. ----- According to Kahneman, many more people will take the gamble when it is framed as potential win (Problem A) rather than as a potential loss (Problem B). So is Gal saying this experiment is not reproducible or that it doesn't demonstrate loss aversion?

248 points by onuralp 8y ago

nyolfen 8y ago

psychology as a discipline is not looking so hot these days

jadedhacker 8y ago
I want to see what some other commentators who are more knowledgeable about the field say. This is a pretty striking attack against a central theory in... Scientific American? Without citing a wealth of evidence with detailed citations? I find the logic of the argument appealing, finding no inborn bias towards gain nor loss outside of what could be derived by reason would be a very nice thing to say about the future of humanity. I read D. Kahneman's book Thinking Fast and Slow a number of years back and it did present some pretty clear looking graphs demonstrating loss aversion of 2:1 iirc. I've since lost my copy due to a friend's "borrowing". ;) Certain other elements of his book have come into question, including priming. I'm eagerly waiting to see how the cookie crumbles here.
- justamus 8y ago
  I agree here. The article mentions ideological complacency, but complacency isn't enough to award 2 Nobel prizes. Loss aversion is, to my layman understanding, a well enough established principle that an article like this without some indication of widespread shift in expert opinion isn't going to change my view of it.
eksemplar 8y ago
This isn’t psychology though, it’s economics. It’s one if the most utilized sciences in the public and political world, and it’s really horrible at predicting anything, at least if you look at the statistics of how rarely it’s right. Loss aversion, and risk aversion as well, are themselves the economic pseudoscience that are based on the psychology of compulsive habits. This article doesn’t really depict the research paper though. The author isn’t saying loss aversion isn’t real, just that it’s been over popularized in a way that isn’t founded in evidence. It also doesn’t address the other economic pseudoscience on the field, so you could quite literally write the opposite article as well. Ironically when it was likey the media representation of “loss aversion” that broke the term to begin with.
dang 8y ago
Maybe not, but please don't post unsubstantive comments to Hacker News.
- albertgoeswoof 8y ago
  I think this is a fair comment, it’s relevant and sparks an interesting debate about psychology as an overall discipline. Not sure it’s fair to call it unsubstantive.
jonny_eh 8y ago
This is just a disagreement within a discipline, it's healthy.

everdev 8y ago

> People do not report their favorite sports team losing a game will be more impactful than their favorite sports team winning a game. For fans of winning teams (Warriors, Patriots, etc.) I'm not sure if this is true. They're expected to win, so watching them win can feel like nervous relief or ambivalence but watching them lose can feel like disappointment. I think we see loss aversion in soccer too where teams will often play "not to lose" and "park the bus" rather than risk pushing forward and trying to win the game but being vulnerable to counter attacks. In video games however most seem to favor aggressive styles of play and loss aversion is likely an instant loss. I'm sure as with most social behavior loss aversion varies and depends on a complex set of conditions. I'm sure in some contexts it's certainly at play though.

nsmog767 8y ago
I anecdotally agree with this. Since I learned about the concept of loss aversion, I've noticed instances where I have to consciously force myself to acknowledge opportunity cost, or the tangible loss dominates in my head.

ggm 8y ago

Economics as a pseudo science of emphatic statements about human behaviour is looking pretty tragic.

jl2718 8y ago
Behavioral economics exists only because psychology has completely lost objectivity and focused on agenda. This article is a good example, uses cognitive ‘proof’ for a behavioral hypothesis. Trash.

btn 8y ago

This article is essentially a press release for the author's own paper: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1047 Which itself is a part of a series of articles in JCP debating the issue: https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 https://onlinelibrary.wiley.com/doi/abs/10.1002/jcpy.1054 The definitive statement made by this article's headline isn't really supported by the evidence presented in the papers. Rather, the state of affairs seems to be that "loss aversion" has been the victim of incessant overgeneralisation. It's a very simple hypothesis about human behaviour that plays nicely into a lot of interesting (and therefore publishable) narratives. This has lead people to blindly accept the general hypothesis of loss aversion without enough critical investigation of its manifestation. The authors don't really refute "loss aversion" (i.e. they don't present an alternative theory to explain the papers that purport to demonstrate "loss aversion"), but rather they refute the pop-psychology belief that it's a general principle of human behaviour.

deleted 8y ago
[deleted]
dwaltrip 8y ago
Thanks for the phrase "incessant overgeneralization" -- I didn't even realize I was looking for that. It seems that this is something the social sciences are inherently at risk of, given how closely the topics are to our everday lives.
- mannykannot 8y ago
  Over-generalization is common beyond the social sciences as well. It is often found in the basis given for false dichotomies, which are not uncommon in discussions of how to write software. It is also apparent in many of the claims made by clickbait titles.
- kelnage 8y ago
  I’d say it’s true of most knowledge, regardless of domain. AI seems like a great candidate in computer science, for example.

throwawaymath 8y ago

Hmm... So here is an interesting thought experiment. Suppose you take a person with some appreciable intelligence (at least average) but no particular knowledge about a certain topic. In this instance, we'll let that topic be psycology. Now we present this person with an unfortunate dilemma. For a particular hypothesis, they observe a significant amount of peer reviewed literature asserting empirical evidence in the affirmative. They don't have any real familiarity with any individual papers, but they can understand that there's an established consensus. On the other hand they are given an article like this one, which mounts a critical refutation of all the established literature. Furthermore, this lone paper is presented to our stalwart examiner amidst the zeitgeist of a reproducibility crisis. Thus we have a mountain of peer reviewed but undigestible evidence on one side, and one readily digestible paper on the other which specifically rebuts the mountain of evidence. The fundamental dilemma is this: how should this person examine the available evidence to maximize their chances of coming to the correct conclusion? Should they abstain from trying to discern the truth of the matter, and strike out any opinion they could have as unqualified? Should they read through the most comprehensive surveys of available evidence to come to a full understanding? Should they take the new, contrarian paper at face value? There are a few dimensions here which (from my view) make the dilemma nearly intractable unless you 1) abstain from an opinion, or 2) become a subject matter expert. The cloud of the reproducibility crisis is a first dimension of uncertainty - not only does that muddy the waters for existig research, but we also have to be careful not take contradictory research at face value simply because it's contrarian. For another, we have to figure out how to weight the reliability of evidence against our own time. It's tempting to discount the evidence of existing research if an especially compelling critique is released, because we can more easily read it and follow its arguments. It seems like this is enormously difficulty all around. How do we rate the critical correctness of differing amounts of conflicting literature published under academic uncertainty?

jadedhacker 8y ago
Usually the solution is to have a graduate student write a review paper. ;)
jjeaff 8y ago
In your thoughts experiment, make your refuting paper a slick Netflix documentary and you have the state we live in now.

mark_edward 8y ago

relevant paper by author of this article http://www.albacharia.ma/xmlui/bitstream/handle/123456789/31953/jdm06002.pdf?sequence=1 http://www.albacharia.ma/xmlui/bitstream/handle/123456789/31...

boron1006 8y ago

After reading the paper that this article was based on, this article and title feel sensationalized. It's not that the evidence of loss aversion was wrong, or statistically invalid, but just may point to different underlying factors or psychological mechanisms. However, this is just a couple of researcher's opinions, and tomorrow a response article may come out saying that loss aversion IS supported by evidence. To me, this is the sign of a healthy science.

vezycash 8y ago

The Ikea effect is a form of loss aversion. This alone shows that someone hasnt done their homework. "A bird in hand is worth two in the bush" is a popular saying with its equivalent in almost every culture. Diversification which is studied, recommended and practiced by almost every investor, CEO, child... Is related to loss aversion. There are many more real life examples of loss aversion.

watwut 8y ago
Calculated strategies to prevent loss are not loss aversion as psychologists use it. Neither is preventing catastrophic "I spend the rest of life in jail" loss.
- vezycash 8y ago
  Calculated or not, loss aversion is loss aversion. The principle, thinking or motive behind diversification isn't investment growth. It's to prevent total loss. I'm other words, loss aversion. You said nothing about the Ikea effect. Here's more. Why do people stay in abusive relationships with individuals & companies? I've put in so much, can't back off now. Scammers know and use this to great effect. Once you've paid, you'll keep paying. Why do investors rush to sell winning stocks but stick stubbornly to losing losing stocks or trades? The network effect is powerful because of loss aversion. "All my contacts, friends, pictures are in..." so I can't switch. LOSS AVERSION CHEAT SHEET. Ask anyone for the reason behind an action. If the sentence begins with or is dominated by, "I don't want" or "I didn't want..." the action was motivated by loss aversion.
  - Jweb_Guru 8y ago
    This is not loss aversion and is explicitly covered in the article.
    - vezycash 8y ago
      Whether my example was stated explicitly in the article is irrelevant. What's important is the primary motive behind an action. In fact, strategy in military, business and soccer is divided into two - offensive and defensive. Offensive strategies are primarily motivated by gain. Defensive - by turf protection, prevent loss of market, or prevent a goal. Both strategies use similar, virtually the same tools. And like loss aversion the difference is simply motive. If China learns that Iceland is planning an attack on them and decides to attack first, it's a defensive strategy. Again, the key is motive. It doesn't matter what the action is, what matters is why it's done. If I kill someone for the heck of it (gain), it's called murder. If instead, it's to protect myself (loss aversion) it's called self defense. Limiting loss aversion to just financial behavior is a myopic view of the subject.

Negative1 8y ago

The author is the one "peddling" the idea that loss aversion is a phalacy but at least he seems to (ironically) recognize that his argument is in itself part of the social/argumentative part of science. Even so, this article seems to draw conclusions as if they were widely held beliefs (I'm not qualified to speak to these claims until I do my own research).

neilwilson 8y ago

Hypothesis: the set of people who want to see loss aversion refuted intersection (sic) heavily with the set of people who want to raise taxes

knn 8y ago

I'm picking through the author's paper and I don't buy this conclusion. I have a bone to pick with his evidence: for example, he makes a comparison between "willingness to expend time to drive to obtain an accidentally left behind unused, new-condition notebook (vs. willingness to expend driving time to obtain a new notebook at no financial cost)". The extent of the former he denotes as WTP-Retain and the latter WTP-Obtain. Even if these two values are equal in a study, that doesn't contradict the principle of loss aversion. In the case where a subject has already left behind his/her notebook, the loss has already happened. How can this measure loss aversion when the loss has already occurred? I think it's good the authors are trying to tease apart action vs inaction from loss/gain but these conclusions don't seem valid to me.

albedoa 8y ago
He did that all throughout the linked article too: "People do not rate the pain of losing $10 to be more intense than the pleasure of gaining $10." Okay. That's not loss aversion though. "People do not report their favorite sports team losing a game will be more impactful than their favorite sports team winning a game." Same.
- Spooky23 8y ago
  How to you rate pain like this? There is no metric for pain/pleasure per dollar. And there are other factors at play. Often the thrill is the dopamine release when you make these decisions — that’s the pain. If you’re intensely interested, losing $500 in Monopoly or scoring a run in baseball may be felt profoundly. It all depends on context, not the means by which we measure an outcome.
MarkMc 8y ago
Well the test subject has the option to 'undo' the loss. So the loss can be seen as optional for the purposes of the experiment. Could we settle the argument by reading the definition of loss aversion to 10 people and asking each person whether the author's experiment measures loss aversion?

davetannenbaum 8y ago

Interesting how their review omits the paper that has conducted the most direct test of loss aversion: https://pubsonline.informs.org/doi/abs/10.1287/mnsc.1070.0711 https://pubsonline.informs.org/doi/abs/10.1287/mnsc.1070.071... Also they claim the body of evidence doesn’t find support for loss aversion. But a meta analysis on the topic does in fact find support for loss aversion (albeit the magnitude is probably smaller than originally thought): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3189088 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3189088

epx 8y ago

The loss aversion is almost trivially explained by the marginal value theorem. The subjective value of money is around log(money), that is, a meaningful change takes an extra 0 in the paycheck or in the price tag. So, if you have $200, getting $100 one thing, losing $100 is way worse, since log(200)=2.30, log(200)-log(100)=0.3, log(300)-log(200)=0.18. A potential loss of $100 must be rewarded by a gain of $200 to "feel" worthwhile if you already have $200, since log(400)-log(200)=log(200)-log(100).

kashyapc 8y ago
Something along those lines is what I recall reading in Kahneman's book. I just double-checked the 'Loss Aversion' chapter, and indeed he writes, and elaborates further: "What is the smallest gain that I need to balance an equal chance to lose $100? For many people the answer is about $200, twice as much as the loss. The "loss aversion ratio" has been estimated in several experiments and is usually in the range of 1.5 to 2.5. This is an average, of course; some people are much more loss averse than others. Professional risk takers in the financial markets are more tolerant of losses, probably because they do not respond emotionally to every fluctuation. When participants in an experiment were instructed to "think like a trader," they became less loss averse and their emotional reaction to losses (measured by a physiological index of emotional arousal) was sharply reduced. [...]"
- mrob 8y ago
  >Professional risk takers in the financial markets are more tolerant of losses, probably because they do not respond emotionally to every fluctuation. Or more plausibly, because they're richer, and the utility they stand to lose is smaller.
  - kashyapc 8y ago
    Good reminder. Although subconsciously I realize that, I didn't remind myself that way and after re-reading that paragraph, I thought: "hmm, maybe I should up 'risk-seeking' dial a bit more"—which can be evaluated independently, though, depending on one's "risk profile".

modells 8y ago

With the paradox of choice, most people are hypersatured with (the paradox of) choices, opportunities and distractions... so any “loss” seems inconsequential at the time because no one seems any more valuable than another. The key fallacy of this attitude is that the world is a small place, life is finite and will end. It doesn’t imply feverishly hustling every tiny opportunity, but filtering and carefully exploring choices with a sound decision framework. Also, most people rarely make rationally-beneficial decisions based on other a myriad of fears, prejudices, laziness, negative cognitive distortions, distractions or inadequate future-planning. Worse, most people are sold on hype, feelings, gossip, peer testimonials and appearance when they can’t be bothered to do due-diligence. OTHO of gain avoidance/scarcity: You can put a “free” sign on a decent household good, set it out, and it won’t move... put a price-tag of $100 on and watch it get “stolen.” tl;dr: The human condition is messy and imperfect... there’s no firm solution except thorough qualitative hypothesis testing via experiences.

dosy 8y ago

On the face of it, and with the benefit of hindsight if the paper's presented theory is valid, if loss aversion as dominant motivation were a thing wouldn't human civilization have never progressed beyond hunter gatherer nomads? Doesn't the fact that we keep growing and progressing as a species even tho the getting of these gains exposes us to risks, not just in the getting there, but once we have arrived, the "curse/paradox of development", suggest that loss aversion is not a majority principle of human behavior? But... maybe...gain attraction / gain pursuit is a general principle...perhaps of all life, not just ours? Maybe that's one of the characteristics that tautologically has to define life. Life exists in an uncertain environment and couldn't continue to do so without taking risks / experimenting into that unknown.

wpietri 8y ago
Not really. Loss aversion doesn't mean complete refusal to face loss or complete lack of interest in gains, it just means that we weight losses more heavily than gains. I also don't think anybody's claiming it's a dominant motivation, just a common characteristic.
- dosy 8y ago
  Interesting perspective. It doesn't really relate to how I think of it. Useful to know that's how you think.

james1071 8y ago

a suggestion - loss aversion might be a manifestation of something else - namely poor decision making under stress.The loss causes the stress, which causes the poor decision making.

jl2718 8y ago

I think the whole point of Thaler’s assertion is that loss aversion is a type 1 bias, so will be demonstrated despite whatever people say when using their type 2 reasoning.

lolc 8y ago

I don't find the listed examples convincing. Especially: > And people are not particularly likely to sell a stock they believe has even odds of going up or down in price (in fact, in one study I performed, over 80 percent of participants said they would hold on to it). How naïve is that? We're not interested in what people said they would do. We want to know what they did!

Cacti 8y ago
Have you paid attention to either of the past US market busts, in 2000-2001 and 2008? People overwhelmingly ride it into the ground because of two things: - The fear of realizing a loss - The unrealistic expectation of upside Also, you'd be hard pressed to find a stock IRL that you could predict in advance as "50/50" and see what participants do, wouldn't you?
- gbear605 8y ago
  It seems like it would be fairly simple to design an stock market simulation (with real money payouts) to test this.
  - Cacti 8y ago
    Either way it is not realistic. People losing a few cents on what they know is a simulation is far, far different than people watching their life savings evaporate in an uncertain environment. Besides, the point of that particular study isn't a stock, it's that they have a 50-50 chance of losing money they were just given. The stock is just a placeholder for anything.
hn_throwaway_99 8y ago
I not only don't find his examples particularly convincing, but in many cases I don't even think they are really examples of loss aversion to begin with. I've always interpreted loss aversion as "It's worse to lose something you've already attained than to miss out on something you never had in the first place." His example of "Messages that frame an appeal in terms of a loss (eg, “you will lose out by not buying our product”) are no more persuasive than messages that frame an appeal in terms of a gain (eg, “you will gain by buying our product”)" is extremely weak IMO. In both cases the consumer never had the product to begin with. The author is trying to argue FOMO is the same thing as loss aversion, which on the contrary, FOMO is really greed.

sacado2 8y ago

Isn't the bias in loss aversion the fact that losing 50 bucks out of 100 isn't symmetric to winning 50 bucks from a capital of 100? If I lose 50, I need to double my new capital to recover my former position, but when I win 50, I "only" need to lose 33% of my new capital. When I lose, relatively speaking, I'm further away than when I win.

tomp 8y ago
That would be risk aversion; the fact that marginal utility of money/wealth/ gains decreases as one gets more wealthy. Loss aversion is the “fact” that “buy now to save 10$” is less motivating than “buy now to avoid 10$ surcharge”, and that “here’s 100$; if the coin tails, you lose $50” is more distressful than “here’s $50; if the coin heads, you gain another $50”.

Dowwie 8y ago

Contrarian science is important if it can successfully refute a claim, but has it in this case? Scientific American is sharing how the sausage is made (peer review science), potentially before the final product is ready.

darkerside 8y ago
It's not refuting a claim so much as narrowing it. I think we could afford to do a lot more of this, especially in sciences where we've made questionable amounts of progress.

darkerside 8y ago

This article is getting flamed pretty good. Here's another perspective I've learned as a software developer. Building on incorrect abstractions is much more damaging than redundancy in your code. It obscures the underlying design that you're trying to unearth and model, leading others down a path with a weak foundation. I think we're well served to narrow the scope of any scientific finding beyond what might seem reasonable. The human mind is a pattern identification machine, and it finds false positives in science as often as it does in religion.

tirumaraiselvan 8y ago

Loss aversion, as it stands today, can be falsified in certain situations so its obviously not writ in stone. What is required is even more study of the context where it still holds.

dosy 8y ago

> However, this process advantages incumbent theories over challengers for a number of reasons, including confirmation bias, social proof, ideological complacency, and the vested interests of scientists whose reputations and even sense of self are tied to existing theories. A consequence is scientific inertia, where weak or ill-founded theories take on a life of their own, sometimes even gaining momentum despite evidence that puts their veracity in doubt. A wonderful, concise summary of some of the human obstacles to the progress of ideas, theories, stories and models about people and the world, scientific in nature or not.

andybak 8y ago

I do struggle sometimes to see how one could do proper science in the field of psychology. It always seems like every experiment contains multiple hidden assumptions, a myriad of uncontrolled-for variables and has more alternative hypotheses that fit the data than you could shake a stick at. Is this me being all Dunning Kruger? Is it my positivist bias obscuring my vision? Have I misunderstood the nature of the scientific method or missed some major aspect of practical epistemology? I sincerely hope so as the alternative explanation regarding the nature and visibility of the emperor's couture is rather upsetting. I do genuinely think I am probably - at least partially - incorrect on this. But I would like some help in shaking my sense of unease.

danschumann 8y ago

Losing money makes you a loser, gaining money is normal, so beyond the actual event, there are identity things at play. In their terms, spending more on a product or less, is not actually touching that identity, because both are just being a spender. I agree about the consequences part: losing equals no roof vs winning equals extra vacation. I think the rest is about the identity that comes with losing.

JackFr 8y ago

I've long been skeptical of much of the behavioral economics literature. Not that it's necessarily wrong, but that the experiments are so contrived that they're difficult to generalize. But the pattern we see is, a contrived example with undergraduate students given $20 bills or something, and then cherry picking of anecdotal real world evidence. It's easy to say that consumers and investors behave irrationally, it's harder to tease out hidden factors in a rational utility/loss function that may depend more on the expected value of one action.

MarkMc 8y ago

The article's author David Gal claims that 'loss aversion' is a fallacy. But in the book Thinking Fast and Slow, Daniel Kahneman says that the following experiment demonstrates loss aversion. ----- People are randomly given one of two problems: Probem A: In addition to whatever you own, you have been given $1,000. You are now asked to choose one of these options: 50% chance to win $1,000 OR get $500 for sure Problem B: In addition to whatever you own, you have been given $2,000. You are now asked to choose one of these options: 50% chance to lose $1,000 OR lose $500 for sure. ----- According to Kahneman, many more people will take the gamble when it is framed as potential win (Problem A) rather than as a potential loss (Problem B). So is Gal saying this experiment is not reproducible or that it doesn't demonstrate loss aversion?