Loss aversion refers to the fact that people are distinctively more sensitive to losses than to gains. Loss averse agents are very risk averse around the reference point and exhibit asymmetric responses to positive and negative income shocks. In an otherwise standard RBC model, I study loss aversion in both consumption alone and consumption-and-leisure together. My results indicate that how los...

The problem of how to maximize growth of wealth was solved over half a century ago by Kelly and Breiman: maximize the expected value of the logarithm of wealth after each period. However, as living organisms we have evolved to maximize gene replication, not wealth. Natural selection is a slow process, so our minds today are adapted to seeking our ultimate goal of reproduction in the environment...

We quantify reference dependence and loss aversion in the housing market using rich Danish administrative data. Our structural model includes aversion, dependence, financial constraints, a sale decision, matches key nonparametric moments, including “hockey stick” listing prices with nominal gains, bunching at zero realized gains. Households derive substantial utility from gains over original ho...

Purpose This study aims to examine the effects of prior small-scale changes wealth on subsequent risky choices. Design/methodology/approach The paper opted for a laboratory experiment in which subjects perform two sequences tasks. In between these sets, author transfers money real randomly selected half subjects. Data choices before and after transfer are used estimate risk attitudes analyze wh...