Exploring Mechanism For Loss Aversion From Loss Probability Perspective

Loss aversion is considered as a ubiquitous behavioral bias.It means that loss has a greater psychological impact than the same number of gains.In prospect theory,the function describing how individuals made decisions is expressed as product of a value function and a probability weight function.There were a mass of researches focusing on how loss aversion varies with the value of outcome,but few researches exploring the effect of probability on loss aversion.According to frequency theory on negative bias,the greater impact of negative events is due to its lower frequency.In this vein,the greater psychological impact of loss is due to the low frequency of loss.It is conjectured that the frequency of loss is a resource on the variation of loss aversion.In this paper,we explored how the frequency of loss effect loss aversion through three experiments which were set in cognition,emotion and behavior scenarios respectively.This study examines the effect of loss frequency on loss aversion through four experiments that look at cognitive,affective,behavioral and real-life situations.In addition to Experiment 1 and Experiment 2,which explored the effect of loss probability on individual loss aversion at the intra-individual cognitive and affective levels respectively,and Experiment 3,which examined it at the extra personal behavioral level,Experiment 4 attempted to examine the ecological validity of the results at the level of real-life contexts.Experiment 1 is a single-factor(frequency of loss: high/low)between-subject design.A modification of the “Bean Fest” was used to explore individuals’ sensitivity to loss under conditions with different frequency of loss.The results showed that: In experiment 1,frequency of loss had an impact on individuals’ sensitivity to loss.When the frequency of loss is low,individuals are more sensitive to loss;while when the frequency of loss is high,individuals are more sensitive to gain.Experiment 2 is a 2(loss probability: high/low)× 2(outcome: loss/ gain)between-subject design.Lottery scenarios with high/low probabilities to lose money were used to explore the individual’s psychological feelings on equal loss and gain.The results showed that: In experiment 2,frequency of loss affected individuals’ affective evaluation of expected and real losses and gains.Compared with the low frequency group,participants in high frequency group were less unhappy when losing and happier when gaining.Experiment 3 is a single-factor(background probability of loss: high /loss/low)between-subject design.The same mixed fair gamble was set in gamble lists with different ranges of loss probability.The results showed that: In experiment 3,the degree of loss aversion toward the same mixed fair gamble were varied as the ranges of loss probability in gamble lists differed.When the same mixed fair gamble set in the low probability background,the loss aversion is greatest.Experiment 4 is a single-factor(probability of loss: high loss/low loss)between-subjects design to investigate whether high probability of loss affects people’s level of loss avoidance in real-life situations.The results found that the probability of loss affects individuals’ level of loss aversion in real-life situations,with individuals being more loss averse in the low loss probability condition compared to the high loss probability condition.In summary,higher probability of loss does affect individuals’ level of loss aversion,not only in terms of intrinsic cognitive and affective aspects of individuals,but also in terms of specific behavioral decisions and real situations.Specifically: in terms of cognitive memory,individuals are less sensitive to loss when the probability of loss is higher(Study 1);in terms of individual affective attitudes,individuals feel significantly less strongly about losing $50 when the probability of loss is higher than when they lose $50 when the probability of loss is low(Study 2);in terms of individual behavioral decisions,loss aversion decreases when individuals are faced with a high probability of loss context(Study 3);and in terms of individual behavioral decisions,loss aversion decreases when individuals are faced with a high probability of loss context(Study 4).The findings were also found to be ecologically valid in real-life situations,with individuals exhibiting less loss aversion when faced with a fair gambling task after experiencing a higher series of losses(Study 4).