IDEAS home Printed from https://ideas.repec.org/a/eee/jobhdp/v112y2010i1p58-69.html
   My bibliography  Save this article

Power and loss aversion

Author

Listed:
  • Inesi, M. Ena

Abstract

Four experiments tested the prediction that power reduces loss aversion by increasing the anticipated value of gains and shrinking the negative anticipated value of losses. Experiment 1 provided initial support for the prediction that those in power are less loss averse by replicating a classic paradigm of loss aversion in riskless choice and demonstrating moderation by power. Experiments 2 and 3 expanded on this finding by breaking apart the components of loss aversion to determine how power may reduce it: via gains, losses, or both. Across two scenarios and two different measures of anticipated value, power reduced the anticipated threat associated with a loss. However, the prediction that power increases the anticipated value of gains was not supported. Finally, Experiment 4 replicated the results of Experiments 2 and 3 in the context of a choice with real consequences for the participants. Implications of these findings are discussed.

Suggested Citation

  • Inesi, M. Ena, 2010. "Power and loss aversion," Organizational Behavior and Human Decision Processes, Elsevier, vol. 112(1), pages 58-69, May.
  • Handle: RePEc:eee:jobhdp:v:112:y:2010:i:1:p:58-69
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0749-5978(10)00002-6
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    2. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    3. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    4. Brendl, C Miguel & Markman, Arthur B & Messner, Claude, 2003. "The Devaluation Effect: Activating a Need Devalues Unrelated Objects," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 29(4), pages 463-473, March.
    5. Bettman, James R & Luce, Mary Frances & Payne, John W, 1998. "Constructive Consumer Choice Processes," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(3), pages 187-217, December.
    6. Offerman, Theo & Sonnemans, Joep & Schram, Arthur, 1996. "Value Orientations, Expectations and Voluntary Contributions in Public Goods," Economic Journal, Royal Economic Society, vol. 106(437), pages 817-845, July.
    7. Gilbert, Daniel T. & Gill, Michael J. & Wilson, Timothy D., 2002. "The Future Is Now: Temporal Correction in Affective Forecasting," Organizational Behavior and Human Decision Processes, Elsevier, vol. 88(1), pages 430-444, May.
    8. Aaker, Jennifer L & Williams, Patti, 1998. "Empathy versus Pride: The Influence of Emotional Appeals across Cultures," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(3), pages 241-261, December.
    9. repec:bla:jfinan:v:53:y:1998:i:5:p:1775-1798 is not listed on IDEAS
    10. Willman, Paul & Fenton-O'Creevy, Mark & Nicholson, Nigel & Soane, Emma, 2002. "Traders, managers and loss aversion in investment banking: a field study," Accounting, Organizations and Society, Elsevier, vol. 27(1-2), pages 85-98.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jonathan J. Rolison & Yaniv Hanoch & Michaela Gummerum, 2013. "When Opportunity Matters: Comparing the Risk‐Taking Attitudes of Prisoners and Recently Released Ex‐Prisoners," Risk Analysis, John Wiley & Sons, vol. 33(11), pages 2013-2022, November.
    2. Brion, Sebastien & Anderson, Cameron, 2013. "The loss of power: How illusions of alliance contribute to powerholders’ downfall," Organizational Behavior and Human Decision Processes, Elsevier, vol. 121(1), pages 129-139.
    3. Vriend, Tim & Jordan, Jennifer & Janssen, Onne, 2016. "Reaching the top and avoiding the bottom: How ranking motivates unethical intentions and behavior," Organizational Behavior and Human Decision Processes, Elsevier, vol. 137(C), pages 142-155.
    4. Brady, Garrett L. & Inesi, M. Ena & Mussweiler, Thomas, 2021. "The power of lost alternatives in negotiations," Organizational Behavior and Human Decision Processes, Elsevier, vol. 162(C), pages 59-80.
    5. Polman, Evan, 2012. "Self–other decision making and loss aversion," Organizational Behavior and Human Decision Processes, Elsevier, vol. 119(2), pages 141-150.
    6. Wolfgang Breuer & Ji Cao & Marc Oliver Rieger & K. Can Soypak, 2019. "Capital Structure Decisions, Loss Aversion, and Equity Premium," Working Paper Series 2019-04, University of Trier, Research Group Quantitative Finance and Risk Analysis.
    7. Mourali, Mehdi & Yang, Zhiyong & Pons, Frank & Hassay, Derek, 2018. "Consumer power and choice deferral: The role of anticipated regret," International Journal of Research in Marketing, Elsevier, vol. 35(1), pages 81-99.
    8. Chad Albrecht & Daniel Holland & Ricardo Malagueño & Simon Dolan & Shay Tzafrir, 2015. "The Role of Power in Financial Statement Fraud Schemes," Journal of Business Ethics, Springer, vol. 131(4), pages 803-813, November.
    9. Lazar, Maya & Levkowitz, Amir & Oren, Amit & Sonsino, Doron, 2017. "A note on receptiveness to loss in structured Investment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 69(C), pages 92-98.
    10. Andres Felipe Cortes & Andreea N. Kiss, 2023. "Is managerial discretion high in small firms? A theoretical framework," Small Business Economics, Springer, vol. 60(1), pages 157-172, January.
    11. Valerie Alexandra & Miguel M. Torres & Olga Kovbasyuk & Theophilus B. A. Addo & Maria Cristina Ferreira, 2017. "The Relationship Between Social Cynicism Belief, Social Dominance Orientation, and the Perception of Unethical Behavior: A Cross-Cultural Examination in Russia, Portugal, and the United States," Journal of Business Ethics, Springer, vol. 146(3), pages 545-562, December.
    12. Inhwa Kim & Keith J. Gamble, 2022. "Too much or too little information: how unknown uncertainty fuels time inconsistency," SN Business & Economics, Springer, vol. 2(2), pages 1-33, February.
    13. Liu, Runqiu & Jiang, Jian & Yu, Chao & Rodenbiker, Jesse & Jiang, Yongmu, 2021. "The endowment effect accompanying villagers' withdrawal from rural homesteads: Field evidence from Chengdu, China," Land Use Policy, Elsevier, vol. 101(C).
    14. Botti, Simona & Hsee, Christopher K., 2010. "Dazed and confused by choice: How the temporal costs of choice freedom lead to undesirable outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 112(2), pages 161-171, July.
    15. Fast, Nathanael J. & Sivanathan, Niro & Mayer, Nicole D. & Galinsky, Adam D., 2012. "Power and overconfident decision-making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 117(2), pages 249-260.
    16. Xie, Yuxin & Hwang, Soosung & Pantelous, Athanasios A., 2018. "Loss aversion around the world: Empirical evidence from pension funds," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 52-62.
    17. Yan, Jinming & Yang, Yumeng & Xia, Fangzhou, 2021. "Subjective land ownership and the endowment effect in land markets: A case study of the farmland “three rights separation” reform in China," Land Use Policy, Elsevier, vol. 101(C).
    18. Chen, Xiao & Wu, Tian & Zheng, Rui & Guo, Xiaoxian, 2018. "How vehicle market is segmented and influenced by subsidy policy: A theoretical study," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 776-782.
    19. Yunyue Yang & Jie Li & Tomoki Sekiguchi, 0. "How supervisors respond to employee voice: an experimental study in China and Japan," Asian Business & Management, Palgrave Macmillan, vol. 0, pages 1-31.
    20. Yunyue Yang & Jie Li & Tomoki Sekiguchi, 2021. "How supervisors respond to employee voice: an experimental study in China and Japan," Asian Business & Management, Palgrave Macmillan, vol. 20(1), pages 1-31, February.
    21. Schaerer, Michael & du Plessis, Christilene & Yap, Andy J. & Thau, Stefan, 2018. "Low power individuals in social power research: A quantitative review, theoretical framework, and empirical test," Organizational Behavior and Human Decision Processes, Elsevier, vol. 149(C), pages 73-96.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jacobs Martin, 2016. "Accounting for Changing Tastes: Approaches to Explaining Unstable Individual Preferences," Review of Economics, De Gruyter, vol. 67(2), pages 121-183, August.
    2. Olapeju Comfort Ogunmokun & Oluwasoye P. Mafimisebi & Demola Obembe, 2023. "Prospect theory and bank credit risk decision-making behaviour: a systematic literature review and future research agenda," SN Business & Economics, Springer, vol. 3(4), pages 1-25, April.
    3. Ioannis Evangelidis & Jonathan Levav, 2019. "Process Utility and the Effect of Inaction Frames," Management Science, INFORMS, vol. 67(5), pages 2328-2341, May.
    4. Jose Apesteguia & Miguel Ballester, 2009. "A theory of reference-dependent behavior," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(3), pages 427-455, September.
    5. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    6. Jidong Zhou, 2011. "Reference Dependence and Market Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1073-1097, December.
    7. Domenico Colucci & Chiara Franco & Vincenzo Valori, 2021. "Endowment effects at different time scenarios: the role of ownership and possession," Discussion Papers 2021/279, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    8. Bowman, David & Minehart, Deborah & Rabin, Matthew, 1999. "Loss aversion in a consumption-savings model," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 155-178, February.
    9. Joost M. E. Pennings & Ale Smidts, 2003. "The Shape of Utility Functions and Organizational Behavior," Management Science, INFORMS, vol. 49(9), pages 1251-1263, September.
    10. repec:ken:wpaper:0601 is not listed on IDEAS
    11. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    12. Fershtman, Chaim, 1996. "On the value of incumbency managerial reference points and loss aversion," Journal of Economic Psychology, Elsevier, vol. 17(2), pages 245-257, April.
    13. Lars Petersen & Jacob Hörisch & Kathleen Jacobs, 2021. "Worse is worse and better doesn't matter?: The effects of favorable and unfavorable environmental information on consumers’ willingness to pay," Journal of Industrial Ecology, Yale University, vol. 25(5), pages 1338-1356, October.
    14. Bogliacino, Francesco & Codagnone, Cristiano, 2021. "Microfoundations, behaviour, and evolution: Evidence from experiments," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 372-385.
    15. Edoardo Grillo, 2014. "Reference Dependence and Politicians' Credibility," Carlo Alberto Notebooks 353, Collegio Carlo Alberto.
    16. Sirikarn Phuchada & Phumsith Mahasuweerachai, 2022. "The Higher the Goal, the More You Eat: Reference Dependence In an “ALL-YOU-CAN-EAT†Restaurant," PIER Discussion Papers 185, Puey Ungphakorn Institute for Economic Research.
    17. Ralf Elbert & Lowis Seikowsky, 2017. "The influences of behavioral biases, barriers and facilitators on the willingness of forwarders’ decision makers to modal shift from unimodal road freight transport to intermodal road–rail freight tra," Journal of Business Economics, Springer, vol. 87(8), pages 1083-1123, November.
    18. William G. Resh & Cynthia Wilkes & Carmen Mooradian, 2020. "Emotional labor assessments and episodic recall bias in public engagement," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(2).
    19. Gerda Ana Melnik-Leroy & Gintautas Dzemyda, 2021. "How to Influence the Results of MCDM?—Evidence of the Impact of Cognitive Biases," Mathematics, MDPI, vol. 9(2), pages 1-25, January.
    20. Alex Dickson & Colin Jennings & Gary Koop, 2016. "Domestic Violence and Football in Glasgow: Are Reference Points Relevant?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(1), pages 1-21, February.
    21. Piccolo, Salvatore & Pignataro, Aldo, 2018. "Consumer loss aversion, product experimentation and tacit collusion," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 49-77.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jobhdp:v:112:y:2010:i:1:p:58-69. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/obhdp .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.