Editing Loss aversion (section)

== Application ==
In [[marketing]], the use of trial periods and [[Rebate (marketing)|rebates]] tries to take advantage of the buyer's tendency to value the [[Good (economics)|good]] more after the buyer incorporates it in the status quo. In past [[behavioral economics]] studies, users participate up until the threat of loss equals any incurred gains. Methods established by Botond Kőszegi and Matthew Rabin in [[experimental economics]] illustrates the role of expectation, wherein an individual's belief about an outcome can create an instance of loss aversion, whether or not a tangible change of state has occurred.<ref>{{Cite journal |last1=Kőszegi |first1=Botond |last2=Rabin |first2=Matthew |date=September 2007 |title=Reference-Dependent Risk Attitudes |journal=American Economic Review |language=en |volume=97 |issue=4 |pages=1047–1073 |doi=10.1257/aer.97.4.1047 |issn=0002-8282}}</ref> 

Whether a transaction is [[Framing effect (psychology)|framed]] as a loss or as a gain is important to this calculation. The same change in price framed differently, for example as a $5 discount or as a $5 surcharge avoided, has a significant effect on consumer behavior.<ref>Levin, Irwin P., Sandra L. Schneider, and Gary J. Gaeth. "All frames are not created equal: A typology and critical analysis of framing effects." ''Organizational behavior and human decision processes'' 76.2 (1998): 149–188.</ref> Although traditional economists consider this "[[endowment effect]]", and all other effects of loss aversion, to be completely [[Irrationality|irrational]], it is important to the fields of [[marketing]] and [[behavioral finance]]. Users in behavioral and experimental economics studies decided to cease participation in iterative money-making games when the threat of loss was close to the expenditure of effort, even when the user stood to further their gains. Loss aversion coupled with myopia has been shown to explain macroeconomic phenomena, such as the [[equity premium puzzle]].<ref>Larson, F., List, J.A., & Metcalfe, R.D. (2016). Can Myopic Loss Aversion Explain the Equity Premium Puzzle? Evidence from a Natural Field Experiment with Professional Traders. NBER Working Paper No. 22605. https://www.nber.org/papers/w22605</ref> Loss aversion to [[kinship]] is an explanation for aversion to [[inheritance tax]].<ref name="n134">{{cite journal | last=Dowding | first=Keith | title=Why are Inheritance Taxes Unpopular? | journal=The Political Quarterly | volume=79 | issue=2 | date=2008 | issn=0032-3179 | doi=10.1111/j.1467-923X.2008.00914.x | pages=179–183| hdl=1885/28956 | hdl-access=free }}</ref>