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Aspirations, Well-being, Risk-Aversion and Loss-Aversion

Author

Listed:
  • Koedijk, Kees
  • Pownall, Rachel A J
  • Statman, Meir

Abstract

Financial well-being is distinct from income. Some people with high incomes suffer low financial well-being, as their incomes fall short of their aspirations. Such people feel propelled to reach their aspirations by taking risk and willing to bear losses. Conversely, some people with low incomes enjoy high financial well-being, as their incomes exceed their aspirations. We find that people whose aspirations exceed their income are less risk-averse and less loss-averse than people whose incomes exceed their aspirations. We also find that competitive and status-seeking people are less risk-averse than people who are less competitive and status-seeking, and that status-seeking people are less loss-averse than people who are not as status-seeking.

Suggested Citation

  • Koedijk, Kees & Pownall, Rachel A J & Statman, Meir, 2012. "Aspirations, Well-being, Risk-Aversion and Loss-Aversion," CEPR Discussion Papers 8904, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8904
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    References listed on IDEAS

    as
    1. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1039-1061.
    2. Daniela Beckmann & Lukas Menkhoff, 2008. "Will Women Be Women? Analyzing the Gender Difference among Financial Experts," Kyklos, Wiley Blackwell, vol. 61(3), pages 364-384, August.
    3. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279-279.
    4. Shefrin, Hersh & Statman, Meir, 2000. "Behavioral Portfolio Theory," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(02), pages 127-151, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    behavioural portfolio theory; loss-aversion; prospect theory; risk-taking; subjective well-being;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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