Editing Loss aversion (section)

{{Short description|Aspect of decision and prospect theories}}
{{use dmy dates|date=February 2024}}{{Cleanup rewrite|date=February 2021}}
[[File:Loss Aversion.png|thumb|Figure 1, a graph of perceived value of gain and loss vs. strict numerical value of gain and loss. A loss of $0.05 is ''perceived'' as having a greater utility loss than the utility increase of a comparable gain.]]

In [[cognitive science]] and [[behavioral economics]], '''loss aversion''' refers to a [[cognitive bias]] in which the same situation is perceived as worse if it is framed as a loss, rather than a gain.<ref>{{Cite journal |last1=Schmidt |first1=Ulrich |last2=Zank |first2=Horst |date=2005-03-01 |title=What is Loss Aversion? |url=https://doi.org/10.1007/s11166-005-6564-6 |journal=Journal of Risk and Uncertainty |language=en |volume=30 |issue=2 |pages=157–167 |doi=10.1007/s11166-005-6564-6 |issn=1573-0476|url-access=subscription }}</ref><ref>{{Cite journal |last1=Abdellaoui |first1=Mohammed |last2=Bleichrodt |first2=Han |last3=Paraschiv |first3=Corina |date=2007 |title=Loss Aversion under Prospect Theory: A Parameter-Free Measurement |url=https://www.jstor.org/stable/20122321 |journal=Management Science |volume=53 |issue=10 |pages=1659–1674 |doi=10.1287/mnsc.1070.0711 |jstor=20122321 |hdl=1765/29218 |issn=0025-1909|hdl-access=free }}</ref> It should not be confused with [[risk aversion]], which describes the [[Rational choice theory|rational]] behavior of valuing an [[Lottery (probability)|uncertain outcome]] at less than its [[expected value]].

When defined in terms of the pseudo-utility function as in [[cumulative prospect theory]] (CPT), the left-hand of the function increases much more steeply than gains, thus being more "painful" than the satisfaction from a comparable gain.<ref>{{Cite journal |last1=Wakker  |first1=Peter  |last2=Tversky  |first2=Amos  |date=1993 |title=An Axiomatization of Cumulative Prospect Theory |url=https://www.jstor.org/stable/41760700 |journal=Journal of Risk and Uncertainty |volume=7 |issue=2 |pages=147–175 |doi=10.1007/BF01065812 |jstor=41760700 |issn=0895-5646}}</ref> Empirically, losses tend to be treated as if they were twice as large as an equivalent gain.<ref name=":0">{{cite journal|year=1992|title=Advances in prospect theory: Cumulative representation of uncertainty|journal=Journal of Risk and Uncertainty|volume=5|pages=297–323|doi=10.1007/BF00122574|author1=Kahneman, D.|author2=Tversky, A.|s2cid=8456150|name-list-style=amp|number=4|citeseerx=10.1.1.320.8769}}</ref> Loss aversion was first proposed by [[Amos Tversky]] and [[Daniel Kahneman]] as an important component of prospect theory.<ref name=":1">{{cite journal|year=1979|title=Prospect Theory: An Analysis of Decision under Risk|journal=Econometrica|volume=47|pages=263–291|doi=10.2307/1914185|author1=Kahneman, D.|author2=Tversky, A.|name-list-style=amp|number=4|jstor=1914185|citeseerx=10.1.1.407.1910}}</ref><ref>{{Cite journal |last=Barberis |first=Nicholas C. |date=2013 |title=Thirty Years of Prospect Theory in Economics: A Review and Assessment |url=https://www.jstor.org/stable/41825467 |journal=The Journal of Economic Perspectives |volume=27 |issue=1 |pages=173–195 |doi=10.1257/jep.27.1.173 |jstor=41825467 |issn=0895-3309}}</ref>