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According to the loss aversion principle, the subjective value that people assign to losses exceeds the subjective value that they assign to equivalent gains. Loss aversion is regarded as one of the strongest and most robust empirical findings in the behavioral sciences. The effect is sufficiently large that, in general, a gain must be twice as large as a loss before individuals perceive the benefits of the potential gain as equal to the cost of a potential loss. First introduced by Kahneman and Tversky (1979, Tversky and Kahneman 1992), loss aversion is an integral part of prospect theory. By incorporating loss aversion and other patterns of behavior, prospect theory provides a descriptive account of judgments and choices under conditions of risk and uncertainty. Within this framework, loss aversion is represented by the lambda (λ) parameter, which controls the steepness of the value function for losses.
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References
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Walasek, L., Mullett, T.L. (2017). Loss Aversion. In: Zeigler-Hill, V., Shackelford, T. (eds) Encyclopedia of Personality and Individual Differences. Springer, Cham. https://doi.org/10.1007/978-3-319-28099-8_2289-1
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DOI: https://doi.org/10.1007/978-3-319-28099-8_2289-1
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