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An Experimental Test of Loss Aversion


  • Schmidt, Ulrich
  • Traub, Stefan


This paper experimentally investigates a preference condition for loss aversion in the framework of cumulative prospect theory (CPT). We propose the concepts of absolute and relative loss premiums in order to measure the extent of loss aversion and to derive notions of increasing, constant, and decreasing loss aversion. While in only one of the 28 choice situations analyzed loss neutrality and loss seeking can be rejected, about 51 percent of all choices are loss averse and, due to the large extent of loss aversion revealed by these choices, the average loss premium is positive for most choice situations. Female subjects exhibit both a more frequent occurrence and a larger extent of loss aversion. Copyright 2002 by Kluwer Academic Publishers

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  • Schmidt, Ulrich & Traub, Stefan, 2002. "An Experimental Test of Loss Aversion," Journal of Risk and Uncertainty, Springer, vol. 25(3), pages 233-249, November.
  • Handle: RePEc:kap:jrisku:v:25:y:2002:i:3:p:233-49

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    References listed on IDEAS

    1. Kelman, Mark & Fallas, David E & Folger, Hilary, 1998. "Decomposing Hindsight Bias," Journal of Risk and Uncertainty, Springer, vol. 16(3), pages 251-269, July-Aug..
    2. Kahneman, Daniel & Knetsch, Jack L., 1992. "Valuing public goods: The purchase of moral satisfaction," Journal of Environmental Economics and Management, Elsevier, vol. 22(1), pages 57-70, January.
    3. Viscusi, W Kip, 1997. "Alarmist Decisions with Divergent Risk Information," Economic Journal, Royal Economic Society, vol. 107(445), pages 1657-1670, November.
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