IDEAS home Printed from https://ideas.repec.org/a/eee/jobhdp/v118y2012i2p203-215.html
   My bibliography  Save this article

Losses loom more likely than gains: Propensity to imagine losses increases their subjective probability

Author

Listed:
  • Bilgin, Baler

Abstract

Losses loom larger than gains. The typical interpretation of loss aversion involves a subjective value-based asymmetry between gains and losses, with individuals expecting losses to be more painful than gains of equal size to be pleasurable. This paper reveals a novel, subjective probability-based asymmetry between gains and losses that may contribute to loss aversion in risky choice. Results from five experiments suggest that losses may loom not only larger, but also more likely than gains. The propensity of losses to attract attention and to be subsequently imagined appears to underlie the proposed asymmetry. The effect translates into changes in predicted behavior, with subjective probability mediating the impact of imagination on the predicted likelihood to accept to play an equal-probability gamble. The implications of our findings for loss aversion, the negativity bias, and the imagination literature are discussed.

Suggested Citation

  • Bilgin, Baler, 2012. "Losses loom more likely than gains: Propensity to imagine losses increases their subjective probability," Organizational Behavior and Human Decision Processes, Elsevier, vol. 118(2), pages 203-215.
  • Handle: RePEc:eee:jobhdp:v:118:y:2012:i:2:p:203-215 DOI: 10.1016/j.obhdp.2012.03.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0749597812000441
    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.

    References listed on IDEAS

    as
    1. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1133-1165.
    2. Shiv, Baba & Huber, Joel, 2000. " The Impact of Anticipating Satisfaction on Consumer Choice," Journal of Consumer Research, Oxford University Press, vol. 27(2), pages 202-216, September.
    3. Eric Johnson & Simon Gaechter & Andreas Herrmann, 2006. "Exploring the Nature of Loss Aversion," Discussion Papers 2006-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    6. Strahilevitz, Michal A & Loewenstein, George, 1998. " The Effect of Ownership History on the Valuation of Objects," Journal of Consumer Research, Oxford University Press, vol. 25(3), pages 276-289, December.
    7. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    8. Keith M. Marzilli Ericson & Andreas Fuster, 2011. "Expectations as Endowments: Evidence on Reference-Dependent Preferences from Exchange and Valuation Experiments," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1879-1907.
    9. Knetsch, Jack L. & Wong, Wei-Kang, 2009. "The endowment effect and the reference state: Evidence and manipulations," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 407-413, August.
    10. Nathalie Etchart-Vincent, 2004. "Is Probability Weighting Sensitive to the Magnitude of Consequences? An Experimental Investigation on Losses," Journal of Risk and Uncertainty, Springer, vol. 28(3), pages 217-235, May.
    11. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
    12. Carmon, Ziv & Ariely, Dan, 2000. " Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers," Journal of Consumer Research, Oxford University Press, vol. 27(3), pages 360-370, December.
    Full references (including those not matched with items on IDEAS)

    Corrections

    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:jobhdp:v:118:y:2012:i:2:p:203-215. 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: http://www.elsevier.com/locate/obhdp .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.