Itamar Simonson and Ran Kivetz, "Bringing (Contingent) Loss Aversion Down to Earth — A Comment on Gal & Rucker’s Rejection of 'Losses Loom Larger Than Gains,'" Journal of Consumer Psychology 28(3): 517-522, July 2018.
• The articles outlined in the two previous posts are part of a "Research Dialogue"; Simonson and Kivetz's reply to Gal and Rucker, outlined here, is an element of the same dialogue.
• Gal and Rucker are right in that loss aversion is neither as firmly established nor as universal as is typically thought. Nonetheless, their retention paradigm is not convincing evidence of an endowment effect sans loss aversion, and they underplay some of the strongest evidence in favor of loss aversion: people demonstrate significant aversion to a risky but highly favorable (in expected value terms) bet, when opposed to a riskless gain (or the status quo) that offers much less in expected value. People routinely turn down 50-50 bets that pay $200 if heads and lose $100 if tails.
• “[T]he question relevant at the present time for our field is not whether loss aversion occurs on average (we think it does), but what factors moderate its presence and magnitude, and relatedly, what are its boundaries [page 518]?”
• Much of the evidence for the endowment effect (like the unwillingness to trade mugs for candy bars or vice versa) is consistent with plausible, non-loss-aversion explanations, such as the awkwardness in coming to an agreement for trivial trades. But the retention paradigm is not very convincing as new evidence against loss aversion, because of the highly artificial settings that arise in trying to reframe the retention of something you own as an active choice.
• In many circumstances, loss aversion does seem to be part of what is going on with endowment effects, even if other mechanisms, such as transaction costs, also are at play. Losses do tend to loom larger than gains, but this is a tendency, one contingent on other factors, and not a universal truth.
• As Gal and Rucker (2018) note, the excessive commitment to loss aversion might crowd out research that can identify other factors that drive decision making.
• The articles outlined in the two previous posts are part of a "Research Dialogue"; Simonson and Kivetz's reply to Gal and Rucker, outlined here, is an element of the same dialogue.
• Gal and Rucker are right in that loss aversion is neither as firmly established nor as universal as is typically thought. Nonetheless, their retention paradigm is not convincing evidence of an endowment effect sans loss aversion, and they underplay some of the strongest evidence in favor of loss aversion: people demonstrate significant aversion to a risky but highly favorable (in expected value terms) bet, when opposed to a riskless gain (or the status quo) that offers much less in expected value. People routinely turn down 50-50 bets that pay $200 if heads and lose $100 if tails.
• “[T]he question relevant at the present time for our field is not whether loss aversion occurs on average (we think it does), but what factors moderate its presence and magnitude, and relatedly, what are its boundaries [page 518]?”
• Much of the evidence for the endowment effect (like the unwillingness to trade mugs for candy bars or vice versa) is consistent with plausible, non-loss-aversion explanations, such as the awkwardness in coming to an agreement for trivial trades. But the retention paradigm is not very convincing as new evidence against loss aversion, because of the highly artificial settings that arise in trying to reframe the retention of something you own as an active choice.
• In many circumstances, loss aversion does seem to be part of what is going on with endowment effects, even if other mechanisms, such as transaction costs, also are at play. Losses do tend to loom larger than gains, but this is a tendency, one contingent on other factors, and not a universal truth.
• As Gal and Rucker (2018) note, the excessive commitment to loss aversion might crowd out research that can identify other factors that drive decision making.
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