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Prospect theory’s loss aversion is robust to stake size

Author

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  • Han Bleichrodt

    (UA - Université d'Alicante, Espagne)

  • Olivier L’haridon

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

Several papers have challenged the robustness of loss aversion, claiming that it is context-dependent and disappears for small stakes. These papers use a behavioral definition of loss aversion that may be confounded by diminishing sensitivity and probability/event weighting under the new version of prospect theory (PT). We perform a new theory-based test of loss aversion that controls for these confounds. We found significant loss aversion for both small stakes and high stakes. The overall loss aversion coefficient varied between 1.25 and 1.45, less than commonly observed. Loss aversion decreased slightly for small stakes, but the effect was small and usually insignificant. Overall, our results indicate that, under PT, loss aversion is robust to stake size. © 2023, Society for Judgment and Decision making. All rights reserved.

Suggested Citation

  • Han Bleichrodt & Olivier L’haridon, 2023. "Prospect theory’s loss aversion is robust to stake size," Post-Print hal-04126663, HAL.
    • Handle: RePEc:hal:journl:hal-04126663
    DOI: 10.1017/jdm.2023.2
    Note: View the original document on HAL open archive server: https://hal.science/hal-04126663
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    References listed on IDEAS

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    Cited by:

    1. Beknazar-Yuzbashev, George & Ichiba, Sota & Stalinski, Mateusz, 2025. "To the Depths of the Sunk Cost: Experiments Revisiting the Elusive Effect," CAGE Online Working Paper Series 746, Competitive Advantage in the Global Economy (CAGE).
    2. Beknazar-Yuzbashev, George & Ichiba, Sota & Stalinski, Mateusz, 2025. "To the Depths of the Sunk Cost : Experiments Revisiting the Elusive Effect," The Warwick Economics Research Paper Series (TWERPS) 1544, University of Warwick, Department of Economics.

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    Keywords

    context dependence; loss aversion; measurement;
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