Origins of loss aversion: an evolutionary tale
This research explores the origins of loss aversion and the variation in the prevalence of this important trait across regions, nations, and ethnic groups. It advances the hypothesis and establishes empirically that the evolution of loss aversion in the course of human history can be traced to the adaptation of individuals to the asymmetric effects that climatic shocks had on reproductive success during the Malthusian epoch; an era in which adverse climatic conditions could have brought individuals to extinction.
Climatic Roots of Loss Aversion
Authors: Oded Galor, Viacheslav Savitskiy
From: Brown University
The endowment effect and loss aversion
Goette and al. designed a two stage experiment where participants were forced into a probabilistic exchange of objects at each stage. They found that that individuals who were measured to be loss averse grew more willing to exchange when probabilistically forced to do so; and individuals who were measured as loss loving grew less willing to exchange. They argue that what prompts people to change their level of loss aversion is Kahneman’s endowment effect.
Heterogeneity of Loss Aversion and Expectations-Based Reference Points
Authors: Lorenz Goette, Thomas Graeber, Alexandre Kellogg, Charles Sprenger
From: University of Bonn, UC San Diego
Loss aversion in economic modelling
Incorporating loss aversion in economic models is tricky, argues John Cochrane, especially when it morphs into irrationality. He suggests, as a half way alternative, habits.
One reason this is different than loss aversion is that it turns out to be much more tractable for the dynamic question – how do you treat multiple bets.
Loss Aversion
By: John Cochrane – Stanford University
