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Loss Aversion

Author

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  • Pavlo R. Blavatskyy

Abstract

Loss aversion is traditionally defined in the context of lotteries over monetary payoffs. This paper extends the notion of loss aversion to a more general setup where outcomes (consequences) may not be measurable in monetary terms and people may have fuzzy preferences over lotteries, i.e. they may choose in a probabilistic manner. The implications of loss aversion are discussed for expected utility theory and rankdependent utility theory as well as for popular models of probabilistic choice such as the constant error/tremble model and a strong utility model (that includes the Fechner model of random errors and Luce choice model as special cases).

Suggested Citation

  • Pavlo R. Blavatskyy, 2008. "Loss Aversion," IEW - Working Papers 375, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:375
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    More about this item

    Keywords

    Loss aversion; more loss averse than; nonmonetary outcomes; probabilistic choice; rank-dependent utility theory;

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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