Global Study Confirms Influential Theory Behind Loss Aversion [Updated]
[20200519_114228 UTC: Updated to remove possible loss as my perceived implication of the original question.--martyb]
martyb writes:
If you were given $1,000 to play a game, would you accept a 50 percent chance to double your money or a 100 percent guarantee of gaining an additional $500?
Implied in the question was that a 50% chance to double the $1,000 was also a 50% chance to lose all of the $1,000. Put that way, I'd take the 100% guarantee of gaining $500 more. Hmm. But why did I make that choice? What if I started with just $10? Or even $1? Would I choose differently? What if I started with $100,000 or even $1,000,000? Then what would my choice be - and why?
That opening question was one of 17 hypotheticals posed when attempting to replicate 1979 foundational research on loss aversion and prospect theory.
Global Study Confirms Influential Theory Behind Loss Aversion:
A new global study offers a powerful confirmation of one of the most influential frameworks in all of behavioral sciences and behavioral economics: prospect theory, which when introduced in 1979 led to a sea change in understanding the irrational and paradoxical ways individuals make decisions and interpret risk with major impacts for science, policy, and industry. Led by a Columbia University Mailman School of Public Health researcher, the new study in 19 countries and 13 languages replicates the original study that provided the empirical basis for prospect theory. Results appear in Nature Human Behaviour.
Developed by Nobel Prize winner Daniel Kahneman and Amos Tversky, prospect theory has been called the most influential theoretical framework in all of the social sciences and popularized the concept of loss aversion, which says that people prefer small guaranteed outcomes over larger risky outcomes. The 1979 paper that launched the theory is today the most cited paper in economics and is among the most cited in psychological science.
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