E. Tory Higgins and Nira Liberman, "The Loss of Loss Aversion: Paying Attention to Reference Points," Journal of Consumer Psychology 28(3): 523-532, July 2018.
• The Gal and Rucker loss aversion article outlined in the previous post was part of a "Research Dialogue"; Higgins and Liberman's reply, outlined here, is an element of the same dialogue.
• Higgins and Lieberman agree with Gal and Rucker: the empirical support for loss aversion is not as strong as its reputation would suggest. Loss aversion is not universal. The more general (than loss aversion) notion of prospect theory – that “reference points increase people’s sensitivity to objective changes in value [p. 523]” – is still viable, however.
• Losses and gains in prospect theory are judged relative to some reference point, which often is taken to be the status quo. If the reference point is not the status quo, however, then gains (relative to the status quo) need not be less powerful than losses, even if that loss-aversion-style result would be case were the status quo the relevant reference point. Further, multiple reference points can be at play at any one time.
• Reference points tend to be outcomes which attract our attention. As a result, we are more sensitive to changes around those points than from changes elsewhere. But this increased sensitivity need not be asymmetric, need not involve loss aversion: sensitivity to either gains or losses or both can increase around references points.
• A second suggestion is that a relevant reference point when judging an outcome is what might have happened instead, the chief counterfactual; gains or losses relative to that alternative will take on intensified value. To just make a train is more enjoyable than making it easily, and to just miss it is more painful than to be much too late. Again, this approach does not suggest the sort of asymmetry that loss aversion requires.
• Reference points such as goals – 10,000 steps per day – might suggest loss aversion: step 10,000 is worth a lot more than step 10,001 – but, Higgins and Lieberman argue, goals as reference points need not involve loss aversion. Many market-based goals have built-in incentives that are more sensitive above the goal – for instance, an increased percentage of royalties from book sales – than below the goal.
• In long-term pursuits, dual reference points can be at play: the starting position might be most salient early in the process, but the ultimate goal takes on more prominence as the pursuit unfolds. Recall that Gal and Rucker suggest that what is taken to be evidence of loss aversion in the literature often can be explained by an inaction bias, where no loss aversion is at play. For long-term pursuits, the “action” alternative is the one for which this dual reference point view seems most apt, and the additional reference point (the goal) can be the source of a greater sensitivity in valuation from changes in the action alternative than in the inaction alternative.
• Some people (the “promotion-focused”) might concentrate on progress, and others (the “prevention-focused”) might concentrate on avoiding losses. Even if the status quo is the same for both individuals, they compare it with different alternative reference points. For the promotion-focused, the status quo is a loss relative to the desired progress; for the prevention-focused, the status quo is a gain relative to the feared worsening.
• If a prevention-focused person found herself below the status quo, she might choose risky strategies if they are her only hope of restoring the status quo. Promotion-focused people, alternatively, starting from below the status quo, will not feel all that motivated to regain the status quo (both are losses, given the reference points at work), but will be more motivated to go from the status quo to a better point. This story, for which there is empirical support, is not consistent with standard prospect-theory-style loss aversion. That is, Gal and Rucker are right, in that the psychological evaluation of negative events (losses) are not always greater than the evaluation of equivalent gains, and people are not always more motivated by the threat of losses than by the prospect of gains.
• The Gal and Rucker loss aversion article outlined in the previous post was part of a "Research Dialogue"; Higgins and Liberman's reply, outlined here, is an element of the same dialogue.
• Higgins and Lieberman agree with Gal and Rucker: the empirical support for loss aversion is not as strong as its reputation would suggest. Loss aversion is not universal. The more general (than loss aversion) notion of prospect theory – that “reference points increase people’s sensitivity to objective changes in value [p. 523]” – is still viable, however.
• Losses and gains in prospect theory are judged relative to some reference point, which often is taken to be the status quo. If the reference point is not the status quo, however, then gains (relative to the status quo) need not be less powerful than losses, even if that loss-aversion-style result would be case were the status quo the relevant reference point. Further, multiple reference points can be at play at any one time.
• Reference points tend to be outcomes which attract our attention. As a result, we are more sensitive to changes around those points than from changes elsewhere. But this increased sensitivity need not be asymmetric, need not involve loss aversion: sensitivity to either gains or losses or both can increase around references points.
• A second suggestion is that a relevant reference point when judging an outcome is what might have happened instead, the chief counterfactual; gains or losses relative to that alternative will take on intensified value. To just make a train is more enjoyable than making it easily, and to just miss it is more painful than to be much too late. Again, this approach does not suggest the sort of asymmetry that loss aversion requires.
• Reference points such as goals – 10,000 steps per day – might suggest loss aversion: step 10,000 is worth a lot more than step 10,001 – but, Higgins and Lieberman argue, goals as reference points need not involve loss aversion. Many market-based goals have built-in incentives that are more sensitive above the goal – for instance, an increased percentage of royalties from book sales – than below the goal.
• In long-term pursuits, dual reference points can be at play: the starting position might be most salient early in the process, but the ultimate goal takes on more prominence as the pursuit unfolds. Recall that Gal and Rucker suggest that what is taken to be evidence of loss aversion in the literature often can be explained by an inaction bias, where no loss aversion is at play. For long-term pursuits, the “action” alternative is the one for which this dual reference point view seems most apt, and the additional reference point (the goal) can be the source of a greater sensitivity in valuation from changes in the action alternative than in the inaction alternative.
• Some people (the “promotion-focused”) might concentrate on progress, and others (the “prevention-focused”) might concentrate on avoiding losses. Even if the status quo is the same for both individuals, they compare it with different alternative reference points. For the promotion-focused, the status quo is a loss relative to the desired progress; for the prevention-focused, the status quo is a gain relative to the feared worsening.
• If a prevention-focused person found herself below the status quo, she might choose risky strategies if they are her only hope of restoring the status quo. Promotion-focused people, alternatively, starting from below the status quo, will not feel all that motivated to regain the status quo (both are losses, given the reference points at work), but will be more motivated to go from the status quo to a better point. This story, for which there is empirical support, is not consistent with standard prospect-theory-style loss aversion. That is, Gal and Rucker are right, in that the psychological evaluation of negative events (losses) are not always greater than the evaluation of equivalent gains, and people are not always more motivated by the threat of losses than by the prospect of gains.
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