Editing Loss aversion (section)

== History ==

In 1979, Daniel Kahneman and his associate Amos Tversky originally coined the term "loss aversion" in their initial proposal of [[prospect theory]] as an alternative descriptive model of decision making under risk.<ref name=":1" /> "The response to losses is stronger than the response to corresponding gains" is Kahneman's definition of loss aversion.

After the first 1979 proposal in the prospect theory framework paper, Tversky and Kahneman used loss aversion for a paper in 1991 about a [[consumer choice]] theory that incorporates [[reference dependence]], loss aversion, and diminishing sensitivity.<ref>{{Cite journal |last1=Tversky |first1=Amos |last2=Kahneman |first2=Daniel |date=1991 |title=Loss Aversion in Riskless Choice: A Reference-Dependent Model |url=https://www.jstor.org/stable/2937956 |journal=The Quarterly Journal of Economics |volume=106 |issue=4 |pages=1039–1061 |doi=10.2307/2937956 |jstor=2937956 |issn=0033-5533}}</ref> Compared to the original paper above that discusses loss aversion in risky choices, Tversky and Kahneman (1991) discuss loss aversion in riskless choices, for instance, not wanting to trade or even sell something that is already in our possession. Here, "losses loom larger than gains" correspondingly reflects how outcomes below the reference level (e.g. what we do not own) loom larger than those above the reference level (e.g. what we own), showing people's tendency to value losses more than gains relative to a reference point. Additionally, the paper supported loss aversion with the [[endowment effect]] theory and [[status quo bias]] theory. Loss aversion was popular in explaining many phenomena in traditional choice theory. In 1980, loss aversion was used in Thaler (1980) regarding endowment effect.<ref>{{Cite journal |last=Thaler |first=Richard |date=1980-03-01 |title=Toward a positive theory of consumer choice |url=https://dx.doi.org/10.1016/0167-2681%2880%2990051-7 |journal=Journal of Economic Behavior & Organization |language=en |volume=1 |issue=1 |pages=39–60 |doi=10.1016/0167-2681(80)90051-7 |issn=0167-2681|url-access=subscription }}</ref> Loss aversion was also used to support the status quo bias in 1988,<ref>{{Cite journal |last1=Samuelson |first1=William |last2=Zeckhauser |first2=Richard |date=1988 |title=Status Quo Bias in Decision Making |url=https://scholar.harvard.edu/rzeckhauser/publications/status-quo-bias-decision-making |journal=Journal of Risk and Uncertainty |volume=1 |issue=1 |pages=7–59|doi=10.1007/BF00055564 |url-access=subscription }}</ref> and the [[equity premium puzzle]] in 1995.<ref>{{Cite journal |last1=Benartzi |first1=S. |last2=Thaler |first2=R. H. |date=1995-02-01 |title=Myopic Loss Aversion and the Equity Premium Puzzle |url=http://dx.doi.org/10.2307/2118511 |journal=The Quarterly Journal of Economics |volume=110 |issue=1 |pages=73–92 |doi=10.2307/2118511 |jstor=2118511 |issn=0033-5533}}</ref> In the 2000s, behavioural finance was an area with frequent application of this theory,<ref>{{Cite journal |last1=Berkelaar |first1=Arjan B. |last2=Kouwenberg |first2=Roy R.P. |last3=Post |first3=Thierry |date=2000 |title=Optimal Portfolio Choice Under Loss Aversion |url=http://dx.doi.org/10.2139/ssrn.214569 |journal=SSRN Electronic Journal |doi=10.2139/ssrn.214569 |issn=1556-5068|hdl=1765/1641 |hdl-access=free }}</ref><ref>{{Cite journal |last1=Barberis |first1=N. |last2=Huang |first2=M. |last3=Santos |first3=T. |date=2001-02-01 |title=Prospect Theory and Asset Prices |url=http://dx.doi.org/10.1162/003355301556310 |journal=The Quarterly Journal of Economics |volume=116 |issue=1 |pages=1–53 |doi=10.1162/003355301556310 |issn=0033-5533}}</ref> including on asset prices and individual stock returns.<ref>{{Cite journal |last1=Kouwenberg |first1=Roy R.P. |last2=Berkelaar |first2=Arjan B. |date=2000 |title=From Boom til Bust: How Loss Aversion Affects Asset Prices |url=http://dx.doi.org/10.2139/ssrn.229548 |journal=SSRN Electronic Journal |doi=10.2139/ssrn.229548 |issn=1556-5068|hdl=1765/1654 |hdl-access=free }}</ref><ref>{{Cite journal |last1=Barberis |first1=Nicholas |last2=Huang |first2=Ming |date=August 2001 |title=Mental Accounting, Loss Aversion, and Individual Stock Returns |url=http://dx.doi.org/10.1111/0022-1082.00367 |journal=The Journal of Finance |volume=56 |issue=4 |pages=1247–1292 |doi=10.1111/0022-1082.00367 |issn=0022-1082}}</ref>