Gal and Rucker (2018) on the Loss of Loss Aversion

David Gal and Derek D. Rucker, “The Loss of Loss Aversion: Will It Loom Larger Than Its Gain?” Journal of Consumer Psychology 28(3): 497-516, July 2018.

• Social scientists seem to all but universally believe in loss aversion, the notion that losses “loom larger” psychologically than do similarly-sized gains.

• Gal and Rucker claim that the actual evidence does not support any general tendency for losses to loom larger than gains: everything depends upon the context.

• There’s a bit of circularity in the promotion of loss aversion: some phenomenon (like the equity premium puzzle or the endowment effect) is “explained” by loss aversion, and then the existence of the phenomenon (the equity premium, the endowment effect) is taken to be evidence that loss aversion is pervasive. 

• The status quo bias might reflect a preference towards inaction – and such a preference can exist in the absence of loss aversion, due to the lack of a motive for action, or economizing on processing costs, or the tendency to regret errors of commission more than errors of omission. 

• When asked to trade their original good for an essentially identical one, loss aversion is not implicated – but people still show a large status quo bias. Action v. inaction confounds the loss-gain story. 

• Is the endowment effect just a case of a status quo bias, and therefore does not require loss aversion? 

• The “retention paradigm” recasts endowment effect experiments as willingness-to-pay (WTP) to obtain an item v. WTP to retain an item – so now the “inaction” choice is not to have the good in both cases. (That is, the confounding of loss aversion with inaction is sidestepped.) 

• If loss aversion is active, then in the retention paradigm, the WTP to retain will be higher than the WTP to obtain. But in the experiments, there was no premium to retain a good or service. For “mundane” goods – mugs, notebooks – obtaining tended to have a higher WTP than retaining. 

• One has to be creative to come up with reasonable “retain” scenarios! Fixing a broken phone, perhaps? 

• Analogous experiments ask if you would like to receive $0 for a good you own, or exchange it for another good. The second condition swaps the owned and alternative good. Mug v. $5 shows no endowment effect – even though the standard exchange paradigm (that is, not the "retention" paradigm) with these goods shows a significant endowment effect. 

• For the standard “loss aversion ratio” test, not accepting the bet is the status quo. This test, too, can be recast: Would you rather receive $0 with a probability of 1 or take a 50-50 bet with the possibility of winning or losing $15? People seem to have a slight preference for the risky alternative. 

• When stakes are higher, preferences shift toward the sure thing – but this could reflect risk aversion, not loss aversion. (And, loss aversion is generally taken to be independent of the stakes.) 

• When you ask people directly about the psychological impact of winning or losing something – you ask them how they feel about these events – losing doesn't dominate in terms of the magnitude of feelings. How do you feel about losing a mug versus winning a mug? 

• How do you feel about losing $3 versus winning $3? What about $100? At the low stakes, people seem to care more about the gain. 

• Loss “frames” are not generally more motivating than “gain” frames (despite some evidence to the contrary in certain domains). 

• Why is loss aversion so popular given its questionable evidentiary base? Perhaps in part due to a status-quo bias among researchers(!), or confirmation bias within Kuhnian “normal science.” 

• Loss aversion holds intuitive appeal: we all feel some losses acutely. And the name “loss aversion” itself is persuasive.

Sjåstad and Baumeister (2018) on Planning Aversion

Hallgeir Sjåstad and Roy F. Baumeister, “The Future and the Will: Planning Requires Self-control, and Ego Depletion Leads to Planning Aversion.” Journal of Experimental Social Psychology 76: 127-141, 2018.

• The authors hypothesize that the willingness to engage in the task of making plans for the future requires self-control; therefore, people who generally have low self-control ("trait" self-control) are less likely to plan, and people who are "ego depleted," who are fatigued ("state" self-control), also will be less likely to plan. (As with many notions in the behavioral sciences, ego depletion is not without its share of controversy.) 

• This article, therefore, adopts the view that willpower draws on a depletable resource, and that when people have depleted that resource through cognitively taxing tasks, they will, in the short term, display reduced willpower (be ego-depleted). In other words, people with higher trait and state self-control will plan more.

• The authors conduct four studies. Study 1 looks at the correlation between trait self-control and planning; Study 2 and Study 3 ask if depletion (low state self-control) reduces planning; and, Study 4 tries to identify the channel through which ego depletion might undermine planning. 

• Study 1 (N=201, Amazon Mechanical Turk, 30 cent payment per participant!) asks individuals questions about the extent of their self-control, their engagement in planning in the past, and their intended planning in the future. Sure enough, high self-control is associated with high past and future planning. Further, there is some evidence that women plan more than men.

• Study 2 is a lab experiment (n=105), where the control (non-depleted) group starts with a relatively easy, 12-minute writing task (avoid the letters x and z) and the depleted group has a 24-minute, difficult task (avoid the letters A and N); this depletion method is used to overcome problems identified in earlier experiments where shorter or less onerous tasks do not do much to distinguish the two groups. Those with the hard writing task report being both more exhausted and less interested (than those with the easy task) in making plans for the next four weeks. The depleted folks are less happy, too, but it doesn’t seem to be mood differences that dissuade the planning.

• Study 3 takes advantage of the possibility that shopping at Ikea tends to makes couples miserable! The participants (N=112) are Ikea shoppers in Norway, with half surveyed pre-shopping, and half surveyed post-shopping. Those who have completed their shopping report making many more recent decisions than the pre-shoppers, as well as being more exhausted. Further, post-shoppers are less willing to plan, though they do not express lower ambitions for the future. (They still want the benefits of planning, it seems, but are less willing to put in the effort.) 

• Study 4 (N=128) picks up on the mechanism connecting ego depletion with planning aversion. Once again, laboratory participants are separated into depletion groups through differentially trying writing tasks. But in this experiment, they are given the opportunity to actually engage in planning, instead of just being asked about their intentions to plan in the future. 

• The participants are asked how hard they like to work, and how hard they think planning would be. Again, the depleted folks avoid planning; further, they express a lessened desire to exert effort to engage in planning, and this altered desire (greater effort avoidance) mediates much of the relationship between depletion and planning: effort avoidance seems to be a major channel connecting depletion to reduced planning.

• "A vicious circle might develop in which failure to plan creates stresses and difficulties, which impose a further drain on limited self-regulatory resources, which in turn makes people all the more reluctant to plan [p. 139]."

Vis and Kuijpers (2018) on Prospect Theory and Foreign Policy

Barbara Vis and Dieuwertje Kuijpers, “Prospect Theory and Foreign Policy Decision-Making: Underexposed Issues, Advancements, and Ways Forward.” Contemporary Security Policy 39(4): 575-589, 2018.

• Risk, in both prospect theory and in useful foreign policy applications, involves outcome uncertainty—so risk considerations are important in the gains domain as well as the loss domain. 

• Probability weighting often is ignored in applications of prospect theory, but it can override the usual “risk averse for gains, risk loving for losses” result. 

• In particular, low probability gains might see risk loving behavior, and low probability losses might be met with risk averse behavior. 

• And in foreign policy applications, low probabilities for unusual events are common. 

• Multiple dimensions are relevant in foreign policy decisions, so there can be multiple reference points, and outcomes might involve gains with respect to some reference points but losses with respect to other reference points. 

• When (to whom and for what decisions) might prospect theory apply? What decisions are better described by expected utility theory? 

• Oddly, ambiguity goes unmentioned in this article.

Rouyard et al. (2018) on Prospect Theory and Chronic Disease

Thomas Rouyard, Arthur Attema, Richard Baskerville, José Leal, Alastair Gray, “Risk Attitudes of People with ‘Manageable’ Chronic Disease: An Analysis Under Prospect Theory.” Social Science & Medicine 214: 144-153, 2018.

• Many patients are non-compliant with recommended medical treatments, at a cost to their health. Is it possible that their choices reflect risk-loving behavior in the loss domain?

• Two outcomes are examined in this study, longevity and quality of life. The usable sample size is n=110; 52 members of this sample have Type 2 diabetes mellitus.

• The empirical approach is aimed at identifying the prospect theory “value function” (in both the loss and gain domains) and the probability weighting (of an objective probability of .5). The estimation of the value function includes an estimation of the extent of loss aversion.

• Many questions are of the nature: Your status quo is to live 20 more years with an excellent quality of life. You must choose between option A, which would give you (with certainty) an additional 3 years of life with a pretty good quality of life, or option B, which offers a 50% chance of gaining 6 years of life, 3 years of high quality and 3 years of low quality, and a 50% chance of remaining with the status quo.

• For loss aversion, the relevant question is of the nature: The status quo is to live 20 more years with an excellent quality of life. A risky prospect available to you involves a 50% probability of gaining an additional 10 years of life with a pretty good quality of life, and a 50% probability of losing L years of life. What is the L that makes you indifferent between the risky prospect and the status quo?

• The authors find that most folks are risk averse in both the loss and gains domains. Older people tend to be more risk averse. Loss aversion is significant (median λ=1.19).

• It probably isn’t risk seeking that leads to medical noncompliance.