Loss Aversion and Its Effects False Impact in Decision Making - Research Paper Example

“People’s choices are often prediction-based about how different results will make them feel” including loss aversion. Naturally, people tend to trust that the effects of all the losses are superior to hedonic effects of a similar-sized gain. If these people are right that the irregularity of the foretold feedbacks to debts and credits matches true irregularity in real reactions to credits and gains, then they would be right and wise to avoid losses, if they are positive that the asymmetry of predicted reactions to losses (Deborah, Kermer; Erin, Driver-Linn, and Gilbert, Daniel).

We acknowledge the fact that losses might have a larger hedonic impact compared to gains, but it is not so the case at all times. Even though the brain appears to processes negative events in different other regions compared to the positive events while triggering more concentrated neural activity than when it processes positive, but this does not mean that loss aversion always affects people’s decision. Sometimes people trivialize negative results by persuading themselves that these negative outcomes will improve and will not be exceedingly damaging.

This has led to the conclusion that not all people are negative. It is not a fact that all people are loss averse. It sometimes seems that people have learnt from experience that losses have less emotional impact than they predicted to have. However, studies showed that a number of impediments such as learning. As noted, a large number of psychological defences ensue outside of conscious alertness, making their anticipation difficult to observe. Further, for correct prediction, individuals have learnt to recognize how they recently reacted to a similar and previous occasion, and further, gotten to predict correctly.

People have recognized experiences simulating how they are reacting. Individuals have mug up that loss has less emotional effect than what they predicted. They have learnt that these losses have less emotional effect than what they predicted due to facing repeated losses in the exact area over a short time. The theory of loss aversion does not apply at all times. It is not necessary that one bases his decision making on loss aversion. Research has shown that despite the fact that people try to make their decision on the fear that they might lose something and fall in a deep set back full of regret, they also try to link it to a past situation where a similar event happened, and the turnout was different.

In contradiction to the theory of loss aversion, an experiment conducted on the reaction of people when they have lost $100. The rules of the experiment were whether the participants were ready to gamble to take another round and risk gaining the $100 back or falling $200 down. Though most people would quit and end the game at being $100 down, others will take the gamble of gaining their $100 back or falling another $100 down because the risk is a 50-50. Comprehending that the risk of falling down another $100 is 50 and the risk of gaining back their $100 are also 50; they will go ahead and try regaining it.

Not all the individuals are get affected with the anxiety of the loss affecting them emotionally and impeding their vision to make soundness decisions (Deborah, Kermer; Erin, Driver-Linn, and Gilbert, Daniel). An argument that there might be a forthcoming negative outcome is presented. This argument is feasible in