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Power and loss aversion

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  • Inesi, M. Ena
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    Abstract

    Four experiments tested the prediction that power reduces loss aversion by increasing the anticipated value of gains and shrinking the negative anticipated value of losses. Experiment 1 provided initial support for the prediction that those in power are less loss averse by replicating a classic paradigm of loss aversion in riskless choice and demonstrating moderation by power. Experiments 2 and 3 expanded on this finding by breaking apart the components of loss aversion to determine how power may reduce it: via gains, losses, or both. Across two scenarios and two different measures of anticipated value, power reduced the anticipated threat associated with a loss. However, the prediction that power increases the anticipated value of gains was not supported. Finally, Experiment 4 replicated the results of Experiments 2 and 3 in the context of a choice with real consequences for the participants. Implications of these findings are discussed.

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    Bibliographic Info

    Article provided by Elsevier in its journal Organizational Behavior and Human Decision Processes.

    Volume (Year): 112 (2010)
    Issue (Month): 1 (May)
    Pages: 58-69

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    Handle: RePEc:eee:jobhdp:v:112:y:2010:i:1:p:58-69

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    Web page: http://www.elsevier.com/locate/obhdp

    Related research

    Keywords: Power Loss aversion Choice Decision making Anticipated value Hedonic Decision outcomes Expected value Approach;

    References

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    1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    2. Gilbert, Daniel T. & Gill, Michael J. & Wilson, Timothy D., 2002. "The Future Is Now: Temporal Correction in Affective Forecasting," Organizational Behavior and Human Decision Processes, Elsevier, vol. 88(1), pages 430-444, May.
    3. Aaker, Jennifer L & Williams, Patti, 1998. " Empathy versus Pride: The Influence of Emotional Appeals across Cultures," Journal of Consumer Research, University of Chicago Press, vol. 25(3), pages 241-61, December.
    4. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
    5. Brendl, C Miguel & Markman, Arthur B & Messner, Claude, 2003. " The Devaluation Effect: Activating a Need Devalues Unrelated Objects," Journal of Consumer Research, University of Chicago Press, vol. 29(4), pages 463-73, March.
    6. Offerman, Theo & Sonnemans, Joep & Schram, Arthur, 1996. "Value Orientations, Expectations and Voluntary Contributions in Public Goods," Economic Journal, Royal Economic Society, vol. 106(437), pages 817-45, July.
    7. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    8. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    9. Willman, Paul & Fenton-O'Creevy, Mark & Nicholson, Nigel & Soane, Emma, 2002. "Traders, managers and loss aversion in investment banking: a field study," Accounting, Organizations and Society, Elsevier, vol. 27(1-2), pages 85-98.
    10. Bettman, James R & Luce, Mary Frances & Payne, John W, 1998. " Constructive Consumer Choice Processes," Journal of Consumer Research, University of Chicago Press, vol. 25(3), pages 187-217, December.
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    Cited by:
    1. Brion, Sebastien & Anderson, Cameron, 2013. "The loss of power: How illusions of alliance contribute to powerholders’ downfall," Organizational Behavior and Human Decision Processes, Elsevier, vol. 121(1), pages 129-139.
    2. Botti, Simona & Hsee, Christopher K., 2010. "Dazed and confused by choice: How the temporal costs of choice freedom lead to undesirable outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 112(2), pages 161-171, July.
    3. Fast, Nathanael J. & Sivanathan, Niro & Mayer, Nicole D. & Galinsky, Adam D., 2012. "Power and overconfident decision-making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 117(2), pages 249-260.
    4. Polman, Evan, 2012. "Self–other decision making and loss aversion," Organizational Behavior and Human Decision Processes, Elsevier, vol. 119(2), pages 141-150.

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