IDEAS home Printed from
   My bibliography  Save this article

Adaptive loss aversion and market experience


  • Lindsay, Luke


This paper develops a new behavioral model of how experience affects willingness to trade called adaptive loss aversion. In the model, agents do not recognize that others have different information. Loss aversion makes them cautious. When trading, this protects them from being exploited by better-informed traders. The degree of loss aversion λ is adjusted in response to experience and carries over between games. When outcomes are better than anticipated, λ decreases; when outcomes are worse than anticipated, it increases. A repeated market experiment with symmetric and asymmetric information is used to test the model. The data are noisier than anticipated but some of the model’ s main predictions are supported. A structural version of the model is estimated using the experimental data and data from two previous experiments on the winner’s curse. A range of other behavioral game theory models is also estimated using the same data and the fit of the models is compared.

Suggested Citation

  • Lindsay, Luke, 2019. "Adaptive loss aversion and market experience," Journal of Economic Behavior & Organization, Elsevier, vol. 168(C), pages 43-61.
  • Handle: RePEc:eee:jeborg:v:168:y:2019:i:c:p:43-61
    DOI: 10.1016/j.jebo.2019.09.023

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Loss aversion; Adaptive learning; Experience;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:168:y:2019:i:c:p:43-61. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.