Background to the Study - Research Paper Example

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Date Introduction Background to the Study Loss aversion is a very fundamental aspect in the behavioral context of human character. The fact that losses have a much bigger impact on the conduct of man than gains helps to underscore very innate issues regarding human motivation and economic behaviors…
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"Background to the Study"

Download file to see previous pages In a way, it is a matter of risk and all the imperative factors that define human conduct with relation to risk and loss. Current Controversy The core of the argument in this case is the fact that losses have a relatively greater impact on choices than gains. While the proponents of the ideal behind los aversion and endowment effect seem to justify its applicability, much antipathy is still realized in this discourse. They question the real fundamentals behind these critical issues. Research question In this regard, the research seeks to answer the following question: “Does loss aversion have any significant uniform effect on the economic character of people.” Literature Review The concept of loss aversion has been a subject of much research and continuous discourse regarding its nature and the effect it has on the character of people. Losses are painful to humans than gains are pleasurable. Inasmuch as loss aversion might appear as a basic characterization across the human conduct, it helps to regard the whole aspects as a personality trait given its subjectivity and relativity. In risk analysis, it is realized that some individuals are more risk averse than others. In this case, risk aversion appears as a personality trait embedded in the character formation of an individual. In the same way, it is realized that loss version even varies within an individual on the basis of particular attributes. For instance somebody might be loss averse for fuel consumption of their car but not for food. This translates into different behaviors in different situations within an individual realm. In its most fundamental connotation, loss aversion is a function of the process of judgment. In this respect, loss aversion is not a mere attribute nor a parameter of choice but an outcome of value judgments (Novemsky & Kahneman 139). Therefore in decision making involving buying or selling, the basic point of reference is whether the trade should be conducted or not. The endowment effect better justifies the concept of loss aversion. The endowment effect affirms that people exhibit much regard for a particular good they own than on an identical commodity they do not own. In this respect therefore, the satisfaction lost when the owned commodity is lost is much higher than the satisfaction gained when the identical commodity is gained. Several studies in the recent past have questioned the very existence of loss aversion as a psychological character in the conduct of man. In examining the effect losses have on the process of decision making under situations of risk and uncertainty, loss aversion was never detected. Several lines of though emerge from this realization. On the one hand, it is seen that loss aversion is never present in limited payoff magnitudes. On the other hand, it is felt that the previously held generality on the concept of loss aversion was a much magnified affair that never exists as supposed. In the same regard, the loss aversion phenomenon does not exist and the whole situation can simply be explained by inertia. There is substantial evidence that people can experience loss aversion even for commodities they never owned. This occurs in case the commodities were part of the choice options that were under judgment in the process of making decisions. It is realized that endowment effect is normally reduced or increased as a function of the similarity of the endowed and un-endowed effect. In the same way, loss ...Download file to see next pagesRead More
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