Development of an Individual Measure of Loss Aversion John W Payne Duke Suzanne B Shu UCLA and NBER Elizabeth C Webb Columbia Namika Sagara Duke Overview Development of a modelfree individuallevel measure of loss aversion ID: 771845
Download Presentation The PPT/PDF document "Development of an Individual Measure of ..." is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Development of an Individual Measure of Loss Aversion John W. Payne (Duke)Suzanne B. Shu (UCLA and NBER)Elizabeth C. Webb (Columbia)*Namika Sagara (Duke)
Overview Development of a model-free individual-level measure of loss aversion 3 Oct 2015 ACR Conference 2015 2
Overview Development of a model-free individual-level measure of loss aversion How loss aversion measure correlates with other individual-level measures 3 Oct 2015 ACR Conference 2015 3
Overview Development of a model-free individual-level measure of loss aversion How loss aversion measure correlates with other individual-level measures Whether loss aversion measure is predictive of consumer behavior 3 Oct 2015 ACR Conference 2015 4
Overview Development of a model-free individual-level measure of loss aversion How loss aversion measure correlates with other individual-level measures Whether loss aversion measure is predictive of consumer behavior 3 Oct 2015 ACR Conference 2015 5 Tested on over 6,600 respondents across six studies
Development of the Loss Aversion Measure Existing Approaches 3 Oct 2015 ACR Conference 2015 6
Development of the Loss Aversion Measure Existing Approaches Assume an underlying model of decisions over risk 3 Oct 2015 ACR Conference 2015 7 Kahneman & Tversky , 1979; Tversky & Kahneman , 1992; Toubia et al., 2013
Development of the Loss Aversion Measure Existing Approaches Assume an underlying model of decisions over risk Use 50:50 two-outcome gambles 3 Oct 2015 ACR Conference 2015 8 Kahneman & Tversky , 1979; Tversky & Kahneman , 1992; Toubia et al., 2013
Development of the Loss Aversion Measure Existing Approaches Assume an underlying model of decisions over risk Use 50:50 two-outcome gambles Our Approach 3 Oct 2015 ACR Conference 2015 9 Kahneman & Tversky , 1979; Tversky & Kahneman , 1992; Toubia et al., 2013
Development of the Loss Aversion Measure Existing Approaches Assume an underlying model of decisions over risk Use 50:50 two-outcome gambles Our Approach Model-free 3 Oct 2015 ACR Conference 2015 10 Kahneman & Tversky , 1979; Tversky & Kahneman , 1992; Toubia et al., 2013
Development of the Loss Aversion Measure Existing Approaches Assume an underlying model of decisions over risk Use 50:50 two-outcome gambles Our Approach Model-free Slightly more complex, mixed three-outcome gambles 3 Oct 2015 ACR Conference 2015 11 Kahneman & Tversky , 1979; Tversky & Kahneman , 1992; Toubia et al., 2013 Brooks & Zank , 2005
Development of the Loss Aversion Measure 3 Oct 2015ACR Conference 2015 12 1 2 3
Development of the Loss Aversion Measure 3 Oct 2015ACR Conference 2015 13 Participants are asked to choose between two gambles in each step 1 2 3
Development of the Loss Aversion Measure 3 Oct 2015ACR Conference 2015 14 Participants are asked to choose between two gambles in each step One gamble in the pair is always the more loss averse choice 1 2 3
Development of the Loss Aversion Measure 3 Oct 2015ACR Conference 2015 15 1 2 3 69% 58% 44% Most respondents express some degree of loss aversion by preferring a loss-averse gamble to a matched gain-seeking gamble
Development of the Loss Aversion Measure 3 Oct 2015ACR Conference 2015 16 Participants are asked to choose between two gambles in each step One gamble in the pair is always the more loss averse choice Yields an overall measure of loss aversion per participant 1 2 3
The Studies 3 Oct 2015ACR Conference 201517 Study 1 N = 832 48.7% female, Mage = 50.5 Study 2 N = 1,432 49.8% female, M age = 44.3 Study 3 N = 1,113 49.7% female, M age = 53.1 Study 4 N = 1,452 69.7% female, M age = 53.3 Study 5 N = 1,010 71.2% female, M age = 57.4 Study 6 N = 831 49.1% female, M age = 35.1
The Studies 3 Oct 2015ACR Conference 201518 Study 1 N = 832 48.7% female, Mage = 50.5 Study 2 N = 1,432 49.8% female, M age = 44.3 Study 3 N = 1,113 49.7% female, M age = 53.1 Study 4 N = 1,452 69.7% female, M age = 53.3 Study 5 N = 1,010 71.2% female, M age = 57.4 Study 6 N = 831 49.1% female, M age = 35.1 Across Studies N = 6,670
The Studies 3 Oct 2015ACR Conference 201519 Study 1 N = 832 48.7% female, Mage = 50.5 Study 2 N = 1,432 49.8% female, M age = 44.3 Study 3 N = 1,113 49.7% female, M age = 53.1 Study 4 N = 1,452 69.7% female, M age = 53.3 Study 5 N = 1,010 71.2% female, M age = 57.4 Study 6 N = 831 49.1% female, M age = 35.1 Across Studies N = 6,670 Demographic Variables Age Expected Age (Life Expectancy) Gender Subjective Health
The Studies 3 Oct 2015ACR Conference 201520 Study 1 N = 832 48.7% female, Mage = 50.5 Study 2 N = 1,432 49.8% female, M age = 44.3 Study 3 N = 1,113 49.7% female, M age = 53.1 Study 4 N = 1,452 69.7% female, M age = 53.3 Study 5 N = 1,010 71.2% female, M age = 57.4 Study 6 N = 831 49.1% female, M age = 35.1 Across Studies N = 6,670 Demographic Variables Age Expected Age (Life Expectancy) Gender Subjective Health Other Variables Social Security Solvency Intertemporal Patience Retirement Savings (Behaviors)
Results: Loss Aversion Measure, By Study (Raw Score) 3 Oct 2015ACR Conference 201521
Results: Loss Aversion Measure, By Study (Raw Score) 3 Oct 2015ACR Conference 201522
Results: Loss Aversion Measure, Across Studies 2 – 6 3 Oct 2015ACR Conference 201523
Results: Loss Aversion Measure, Across Studies 2 – 6 3 Oct 2015ACR Conference 201524 Loss aversion measure is relatively normally distributed – no clustering at either end of the scale
Results: Lambda Across Studies 2 - 6 3 Oct 2015ACR Conference 201525
Results: Lambda Across Studies 2 - 6 3 Oct 2015ACR Conference 201526 Average lambda across studies is 2.16
Results: Lambda Across Studies 2 - 6 3 Oct 2015ACR Conference 201527 The lambda coefficient shows a jump from lambdas below one (loss-seeking) to lambdas above one (loss aversion)
Correlates of Loss Aversion Loss Aversion Loss Aversion Loss Aversion (1) (2) (3) Std Age 0.04 0.003 -0.05 (0.02) (0.03) (0.10) Std Expected Age -0.14*** -0.10*** -0.21** (0.02) (0.03) (0.07) Gender -0.43*** -0.38*** -0.53*** (0 = Female, 1 = Male) (0.05) (0.06) (0.11) Savings -0.01 -0.01 -0.01 (0.01) (0.01) (0.01) SSA Exist -0.0004 -0.001 -0.001 (0.001) (0.001) (0.003) Intertemporal Choice -0.11*** -0.08 (0.03) (0.07) Health -0.04 (0.05) N 5,863 4,305 1,016 3 Oct 2015 ACR Conference 2015 28 * p < 0.05, ** p < 0.01, *** p < 0.001
Correlates of Loss Aversion Loss Aversion Loss Aversion Loss Aversion (1) (2) (3) Std Age 0.04 0.003 -0.05 (0.02) (0.03) (0.10) Std Expected Age -0.14*** -0.10*** -0.21** (0.02) (0.03) (0.07) Gender -0.43*** -0.38*** -0.53*** (0 = Female, 1 = Male) (0.05) (0.06) (0.11) Savings -0.01 -0.01 -0.01 (0.01) (0.01) (0.01) SSA Exist -0.0004 -0.001 -0.001 (0.001) (0.001) (0.003) Intertemporal Choice -0.11*** -0.08 (0.03) (0.07) Health -0.04 (0.05) N 5,863 4,305 1,016 3 Oct 2015 ACR Conference 2015 29 * p < 0.05, ** p < 0.01, *** p < 0.001
Loss Aversion Measure, by Gender 3 Oct 2015ACR Conference 201530 Males are less loss averse than females ( p < .001)
Correlates of Loss Aversion Loss Aversion Loss Aversion Loss Aversion (1) (2) (3) Std Age 0.04 0.003 -0.05 (0.02) (0.03) (0.10) Std Expected Age -0.14*** -0.10*** -0.21** (0.02) (0.03) (0.07) Gender -0.43*** -0.38*** -0.53*** (0 = Female, 1 = Male) (0.05) (0.06) (0.11) Savings -0.01 -0.01 -0.01 (0.01) (0.01) (0.01) SSA Exist -0.0004 -0.001 -0.001 (0.001) (0.001) (0.003) Intertemporal Choice -0.11*** -0.08 (0.03) (0.07) Health -0.04 (0.05) N 5,863 4,305 1,016 3 Oct 2015 ACR Conference 2015 31 Average life expectancy is significantly correlated with the loss aversion measure – individuals who expect to live longer have lower loss aversion measures on average * p < 0.05, ** p < 0.01, *** p < 0.001
Correlates of Loss Aversion Loss Aversion Loss Aversion Loss Aversion (1) (2) (3) Std Age 0.04 0.003 -0.05 (0.02) (0.03) (0.10) Std Expected Age -0.14*** -0.10*** -0.21** (0.02) (0.03) (0.07) Gender -0.43*** -0.38*** -0.53*** (0 = Female, 1 = Male) (0.05) (0.06) (0.11) Savings -0.01 -0.01 -0.01 (0.01) (0.01) (0.01) SSA Exist -0.0004 -0.001 -0.001 (0.001) (0.001) (0.003) Intertemporal Choice -0.11*** -0.08 (0.03) (0.07) Health -0.04 (0.05) N 5,863 4,305 1,016 3 Oct 2015 ACR Conference 2015 32 Intertemporal patience is significantly correlated with the loss aversion measure – participants who are more patient are also less loss averse on average * p < 0.05, ** p < 0.01, *** p < 0.001
Correlates of Loss Aversion Loss Aversion Loss Aversion Loss Aversion (1) (2) (3) Std Age 0.04 0.003 -0.05 (0.02) (0.03) (0.10) Std Expected Age -0.14*** -0.10*** -0.21** (0.02) (0.03) (0.07) Gender -0.43*** -0.38*** -0.53*** (0 = Female, 1 = Male) (0.05) (0.06) (0.11) Savings -0.01 -0.01 -0.01 (0.01) (0.01) (0.01) SSA Exist -0.0004 -0.001 -0.001 (0.001) (0.001) (0.003) Intertemporal Choice -0.11*** -0.08 (0.03) (0.07) Health -0.04 (0.05) N 5,863 4,305 1,016 3 Oct 2015 ACR Conference 2015 33 Self-reported level of savings and health, as well as subjective beliefs about Social Security solvency are not significantly correlated with the loss aversion measure * p < 0.05, ** p < 0.01, *** p < 0.001
Implications: Retirement Behaviors 3 Oct 2015ACR Conference 201534 Claiming Annuities Bonds Savings Combined Constant 64.19*** 30.55*** 41.64*** 6.45*** -0.52*** (1.0) (10.5) (9.0) (1.9) (0.2) Demographics Yes Yes Yes Yes Yes Loss aversion -0.06 -0.68 0.85 ** -0.19** -0.03*** (0.04) (0.46) (0.39) (0.08) (0.01) Manipulation Controls Yes Yes Yes Yes Yes ** p < 0.05, *** p < 0.01
Implications: Retirement Behaviors 3 Oct 2015ACR Conference 201535 Claiming Annuities Bonds Savings Combined Constant 64.19*** 30.55*** 41.64*** 6.45*** -0.52*** (1.0) (10.5) (9.0) (1.9) (0.2) Demographics Yes Yes Yes Yes Yes Loss aversion -0.06 -0.68 0.85 ** -0.19** -0.03*** (0.04) (0.46) (0.39) (0.08) (0.01) Manipulation Controls Yes Yes Yes Yes Yes The loss aversion measure is a significant predictor of several consumer financial decision-making behaviors ** p < 0.05, *** p < 0.01
Implications: Retirement Behaviors 3 Oct 2015ACR Conference 201536 Claiming Annuities Bonds Savings Combined Constant 64.19*** 30.55*** 41.64*** 6.45*** -0.52*** (1.0) (10.5) (9.0) (1.9) (0.2) Demographics Yes Yes Yes Yes Yes Loss aversion -0.06 -0.68 0.85 ** -0.19** -0.03*** (0.04) (0.46) (0.39) (0.08) (0.01) Manipulation Controls Yes Yes Yes Yes Yes The loss aversion measure is a significant predictor of several consumer financial decision-making behaviors More loss averse individuals prefer bonds (over equities), save less, and show overall myopia in retirement-related decisions ** p < 0.05, *** p < 0.01
Implications: Retirement Behaviors 3 Oct 2015ACR Conference 201537 Claiming Annuities Bonds Savings Combined Constant 64.19*** 30.55*** 41.64*** 6.45*** -0.52*** (1.0) (10.5) (9.0) (1.9) (0.2) Demographics Yes Yes Yes Yes Yes Loss aversion -0.06 -0.68 0.85 ** -0.19** -0.03*** (0.04) (0.46) (0.39) (0.08) (0.01) Manipulation Controls Yes Yes Yes Yes Yes The loss aversion measure is a significant predictor of several consumer financial decision-making behaviors More loss averse individuals prefer bonds (over equities), save less, and show overall myopia in retirement-related decisions ** p < 0.05, *** p < 0.01
Implications: Retirement Behaviors 3 Oct 2015ACR Conference 201538 Claiming Annuities Bonds Savings Combined Constant 64.19*** 30.55*** 41.64*** 6.45*** -0.52*** (1.0) (10.5) (9.0) (1.9) (0.2) Demographics Yes Yes Yes Yes Yes Loss aversion -0.06 -0.68 0.85 ** -0.19** -0.03*** (0.04) (0.46) (0.39) (0.08) (0.01) Manipulation Controls Yes Yes Yes Yes Yes The loss aversion measure is a significant predictor of several consumer financial decision-making behaviors More loss averse individuals prefer bonds (over equities), save less, and show overall myopia in retirement-related decisions ** p < 0.05, *** p < 0.01
Takeaways 3 Oct 2015ACR Conference 201539 Formulated an easy-to-implement, model-free loss aversion measure
Takeaways 3 Oct 2015ACR Conference 201540 Formulated an easy-to-implement, model-free loss aversion measure D emonstrated the relationship between demographic/psychographic variables and our loss aversion measure
Takeaways 3 Oct 2015ACR Conference 201541 Formulated an easy-to-implement, model-free loss aversion measure D emonstrated the relationship between demographic/psychographic variables and our loss aversion measure Our loss aversion measure is a significant predictor of important financial decision-making behaviors
THANK YOU!! Elizabeth C. Webbecw2144@gsb.columbia.edu