Absolute and relative stability of loss aversion across contexts

Abstract

Individuals’ decisions under risk tend to be in line with the notion that “losses loom larger than gains”. This loss aversion in decision making is commonly understood as a stable individual preference that is manifested across different contexts. The presumed stability and generality, which underlies the prominence of loss aversion in the literature at large, has been recently questioned by studies showing how loss aversion can disappear, and even reverse, as a function of the choice context. The present study investigated whether loss aversion reflects a trait-like attitude of avoiding losses or rather individuals’ adaptability to different contexts. We report three experiments that investigated the within-subject context sensitivity of loss aversion in a two-alternative forced-choice task. The results show beside interindiviudal differences in loss aversion, that the context affects the extent of loss aversion. This indicates that even though the absolute value of loss aversion can be affected by external factors such as the choice context, estimates of people’s loss aversion still capture the relative dispositions towards gains and losses across individuals.