Loss Aversion

Abstract

Why did the crisis-battered Greeks desert the center and flee to both extremes of the political spectrum? Contrary to established theories, and drawing from cognitive psychology and behavioral economics, it is shown that, as the crisis hit Greece much harder than any other European nation, Greek voters became particularly averse to losing what they had gained during the years of populist democracy. Hence, they chose the probability of a serious political impasse over the sure economic loss caused by austerity and reformism.