Effects of Loss Aversion - Research Paper Example

This gives an explanation of curvilinear shape of prospect theory. The same philosophers argue that people prefer risks to exposing themselves to losses. This theory also explains sunk cost theory. The theory applies that, when one lose $100, he will be more satisfied than a person who losses $100 windfall. In reference to marketing, we make use of trial periods or rebates with the aim of taking advantage of the tendency of the buyers. This is to value the gods more than the incorporation in the status quo (Kahneman, Knetsch, & Thaler 10).

It is crucial note that, despite the fact that transactions are framed on losses or gains, is significant to have the following calculation. Is there a discount or a surcharge? Change in price is differently framed and has impacts on loss aversion. In reference traditional economist, loss aversion together with other endowment effect is irrational. This is the reason why they ate highly essential in the field of behavioral finance and marketing. This effect was demonstrated together with other effects in a customer reaction study, which related insurance policies and price changes.

From the study, they found that prices raises customer reaction twice in case of its alteration (Kahneman, Knetsch, & Thaler 10). Research question This proposal encompasses effects of loss aversion. It also contains different ideas relating to the theory. Objectives To lean all the effects and impacts of loss aversion Methodology This proposal entails ideas from different individuals. This is to ensure that the research is all rounded and is suit for further empirical studies. In reference to results from different philosophers, there is a need to apply different methodologies to ensure to enhance reliability and completeness of the research.

These methodologies entail questionnaires, experiments, interviews, surveys among others. These methodologies are applied in different fields of study, in respect with their fitness. In this case, questionnaires will be applicable in instances, where there is some level of specification. The setting of questionnaires will be different in reference with the target group. Questionnaires and interviews are the key research methodologies. However, interviewing is effective in areas where the research expected is to be analyzed with some level of formality.

Other methods are supplements of the above methodologies. Literature review Colin Camerer is Rea and Lela Axline professor of business economics at California institute of technology. Camerer investigates decision making with regards to psychophysical considerations. His thesis in this journal is that; St. Petersburg paradox might be explained using loss aversion without concave utility. He goes further to defend it by saying it is theoretically useful; is a principle that can explain many puzzles economically, given that it has the correct psychological foundation.

This was published by the American marketing association (Kahneman, Knetsch, & Thaler 11). The author’s main interest is in finding out whether; loss aversion is an expression of fear, or a stable preference fear and properties in loss aversion. According to Camerer, prospect theory has the power to explain how people value risk. A fruitful and parsimonious alternative, to the expected theory of utility is introduced by prospect theory. It as well introduces psychophysical and perceptual perspective in thinking about money, goods and risks.

In the findings is a