I note that I am confused. I am confused mostly because the claim “loss aversion exists only for large losses” seems to be completely disharmonious with my anecdotal experience, and I tend to view anecdotal experience as an often semi-reliable guide to the accuracy of social science. If the strong version of this claim is true, how would you explain the following facts?
This video, in which a bunch of people on the street did not want to bet at favorable odds that a coin flip would land tails.
A large fraction of the population holds their money in low-interest savings accounts, rather than putting their money in a brokerage account where they can buy stocks.
People systematically refuse to throw away stuff that they own, even if they haven’t used the items in years. But when asked whether they would pay a dollar to put one more useless item in their home, they will refuse.
People usually view petty theft as horrible when it’s committed against them, even though they usually don’t become extremely happy when you unexpectedly give them $50.
It’s well known that people will panic-sell during a market correction, even though if the market rises by 10% people don’t change their behavior by much, and even if they don’t have much money in the stock market.
Anecdotally, I used to gamble small amounts of money and would feel really bad if I lost it, even if it was just $20. Lots of people don’t like taking friendly epistemic bets for similar reasons.
My guess is that you could come up with ad-hoc explanations for all of these things without reference to loss aversion, but that doesn’t seem very elegant to me. A proclivity for loss aversion present in 50+% of humans appears like the most natural, simple explanation.
[ETA: However, after reading the link from Kaj Sotala I’m starting to feel my mind being changed.]
I note that I am confused. I am confused mostly because the claim “loss aversion exists only for large losses” seems to be completely disharmonious with my anecdotal experience, and I tend to view anecdotal experience as an often semi-reliable guide to the accuracy of social science. If the strong version of this claim is true, how would you explain the following facts?
This video, in which a bunch of people on the street did not want to bet at favorable odds that a coin flip would land tails.
A large fraction of the population holds their money in low-interest savings accounts, rather than putting their money in a brokerage account where they can buy stocks.
People systematically refuse to throw away stuff that they own, even if they haven’t used the items in years. But when asked whether they would pay a dollar to put one more useless item in their home, they will refuse.
People usually view petty theft as horrible when it’s committed against them, even though they usually don’t become extremely happy when you unexpectedly give them $50.
It’s well known that people will panic-sell during a market correction, even though if the market rises by 10% people don’t change their behavior by much, and even if they don’t have much money in the stock market.
Anecdotally, I used to gamble small amounts of money and would feel really bad if I lost it, even if it was just $20. Lots of people don’t like taking friendly epistemic bets for similar reasons.
My guess is that you could come up with ad-hoc explanations for all of these things without reference to loss aversion, but that doesn’t seem very elegant to me. A proclivity for loss aversion present in 50+% of humans appears like the most natural, simple explanation.
[ETA: However, after reading the link from Kaj Sotala I’m starting to feel my mind being changed.]