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Loss Aversion - Research Paper Example

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Date Situations in which loss aversion theory does not work Introduction Loss aversion has rampantly been discussed both in public and private forums due to its impact on the thinking of individuals and groups. Assumptions have been developed to explain that loss aversion originates from anticipations that in the event of a loss or gain occurring, losses have a greater impact on individual feelings than gains of equal magnitude would exhibit…
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Loss Aversion Research Paper
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Download file to see previous pages This is evident in trying to explain loss aversion since its explanation is only one sided ignoring the loss-gain explanation aspect of this aspect (McGraw, Peter, Jeff, Daniel and David, 1440). Loss aversion patterns observed in the past periods makes it clear that when a loss and a gain of equal magnitude are compared and an assessment made, losses are realized to impact more on making choices than gains of the same magnitude would do. This is because a loss as it occurs is felt in the very short instances with great influence and severity as compared to if the same amounts of gains occurred. This asymmetry is mostly driven by thoughts and feelings that losses should inflict more pain than would gains of the same or slightly higher magnitude would bring joy and pleasure to the individuals (Harinck, Fieke, Eric, Ilja Van and Paul, 1099-1100). Some form of bias have been witnessed in the observations made since the loss aversion form of impact is mostly felt on non-monetary circumstances with the asymmetry not completely detected on monetary situations. This has been proved from several previous studies on monetary gains and losses such as that on mixed gambles assessed on bipolar scales. Support for loss aversion According to the previous discussions, loss aversion happens when people think and expect that losses have greater impacts when compared to the same gain magnitude. This version of the case has been proved by two studies; initially, it was proved that losses that were witnessed from a gamble resulted into greater impacts in feelings than those for gains; this might have been because the expectation may have been quite high. From the studies, it is highly acknowledged that the hedonic impact of losses is higher than corresponding gains. This is proved because negative aspects are processed severally in the different parts for the brains than the processing of positive acts, this highly raises psychological feelings due to increased neural activity. In decision making research, there are constructs of loss aversion that have been used in giving explanation to the effects detected such as endowment and status quo reports. The other effect that this form of act tends to explain is the framing effect that is developed for negotiations in the formation of coalitions (Harinck, Fieke, Eric, Ilja Van and Paul, 1100). . Reasons against loss aversion Despite the application of Loss Aversion having been proved, they may be irrelevant at times. From research, it is found that supporters of loss aversion highly exaggerate the situation. It is clear that negative outcomes are painful when they inflict any individual but it has been witnessed in the past that individual exaggerate the degree of the impact which even propels the inflicted to prolong the period of the feeling. The form of bias exhibited above has been witnessed and recorded through valid proofs in a diverse field of study where people tend to normally exaggerate their negative feelings about negative occurrences (Kermer, Deborah, Erin, Timothy and Daniel, 651). In the past individuals have also failed to gauge how much they are able ...Download file to see next pagesRead More
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