Eyal Zamir
- Published in print:
- 2014
- Published Online:
- November 2014
- ISBN:
- 9780199972050
- eISBN:
- 9780190215064
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199972050.003.0001
- Subject:
- Law, Philosophy of Law
Chapter 1 provides an overview of loss aversion. After a historical account, it describes the experimental and empirical findings that demonstrate loss aversion and elucidate its relationships to ...
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Chapter 1 provides an overview of loss aversion. After a historical account, it describes the experimental and empirical findings that demonstrate loss aversion and elucidate its relationships to more specific phenomena, such as the status quo bias and omission bias, endowment effect, escalation of commitment, and bounded ethicality. The chapter also reviews studies of the relationship between loss aversion and emotions; the neural basis of loss aversion; and hypotheses about its evolutionary roots. It examines what happens when competing and multiple reference points exist, and highlights the generality of reference-dependence in people’s perceptions and judgments. It also examines the effect of professional experience and group decision-making on loss aversion, and reviews attempts to “debias” loss aversion. It mentions other theories that share the notion that losses loom larger than gains, and discusses critiques of prospect theory. Finally, it points to the impact that loss aversion has had on several disciplines.Less
Chapter 1 provides an overview of loss aversion. After a historical account, it describes the experimental and empirical findings that demonstrate loss aversion and elucidate its relationships to more specific phenomena, such as the status quo bias and omission bias, endowment effect, escalation of commitment, and bounded ethicality. The chapter also reviews studies of the relationship between loss aversion and emotions; the neural basis of loss aversion; and hypotheses about its evolutionary roots. It examines what happens when competing and multiple reference points exist, and highlights the generality of reference-dependence in people’s perceptions and judgments. It also examines the effect of professional experience and group decision-making on loss aversion, and reviews attempts to “debias” loss aversion. It mentions other theories that share the notion that losses loom larger than gains, and discusses critiques of prospect theory. Finally, it points to the impact that loss aversion has had on several disciplines.
Paul H Rubin and C. Monica Capra
- Published in print:
- 2011
- Published Online:
- January 2012
- ISBN:
- 9780199586073
- eISBN:
- 9780191731358
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199586073.003.0002
- Subject:
- Psychology, Evolutionary Psychology, Developmental Psychology
In this chapter, we argue that applying evolutionary psychology to economics can explain observed ‘anomalies’ in decision-making. We provide an analysis of the relationships between economics and the ...
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In this chapter, we argue that applying evolutionary psychology to economics can explain observed ‘anomalies’ in decision-making. We provide an analysis of the relationships between economics and the evolutionary and biological origin of economic choice, focusing on some selected topics that are of special interest to us. These are: (1) rationality and biases, especially as related to the endowment effect, (2) the extent to which individuals are selfish or pro-social, (3) individuality versus heterogeneity, and (4) perceptions of economics. We discuss examples of how evolutionary psychology can explain anomalous behaviour including violations to rational choice, such as the status quo bias. Evolved mechanisms can also explain the curious persistence of pro-social behaviour in one-shot anonymous interactions, and the observed heterogeneity of agent types. Finally, we argue that the perception of economics is also affected by evolved mechanisms from pre-modern times. We believe that more explicit attention to the evolutionary bases of economic behaviour would lead to real advances in economic theory.Less
In this chapter, we argue that applying evolutionary psychology to economics can explain observed ‘anomalies’ in decision-making. We provide an analysis of the relationships between economics and the evolutionary and biological origin of economic choice, focusing on some selected topics that are of special interest to us. These are: (1) rationality and biases, especially as related to the endowment effect, (2) the extent to which individuals are selfish or pro-social, (3) individuality versus heterogeneity, and (4) perceptions of economics. We discuss examples of how evolutionary psychology can explain anomalous behaviour including violations to rational choice, such as the status quo bias. Evolved mechanisms can also explain the curious persistence of pro-social behaviour in one-shot anonymous interactions, and the observed heterogeneity of agent types. Finally, we argue that the perception of economics is also affected by evolved mechanisms from pre-modern times. We believe that more explicit attention to the evolutionary bases of economic behaviour would lead to real advances in economic theory.
Spiegler Ran
- Published in print:
- 2011
- Published Online:
- September 2011
- ISBN:
- 9780195398717
- eISBN:
- 9780199896790
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195398717.003.0009
- Subject:
- Economics and Finance, Behavioural Economics
This chapter analyzes monopoly and duopoly pricing when consumers display loss aversion. It assumes that consumers’ reference point is determined by their expectations. First, the model is applied to ...
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This chapter analyzes monopoly and duopoly pricing when consumers display loss aversion. It assumes that consumers’ reference point is determined by their expectations. First, the model is applied to capture the idea that consumers are antagonized by unexpected price increases, and the implications of this idea for price rigidity and uniformity. Second, the model is applied to capture an “attachment effect” (a variant on the endowment effect) and the implications of this idea for the use of sales.Less
This chapter analyzes monopoly and duopoly pricing when consumers display loss aversion. It assumes that consumers’ reference point is determined by their expectations. First, the model is applied to capture the idea that consumers are antagonized by unexpected price increases, and the implications of this idea for price rigidity and uniformity. Second, the model is applied to capture an “attachment effect” (a variant on the endowment effect) and the implications of this idea for the use of sales.
Eyal Zamir
- Published in print:
- 2014
- Published Online:
- November 2014
- ISBN:
- 9780199972050
- eISBN:
- 9780190215064
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199972050.001.0001
- Subject:
- Law, Philosophy of Law
Prospect theory posits that people do not perceive outcomes as final states of wealth or welfare, but rather as gains or losses in relation to some reference point. People are generally loss averse: ...
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Prospect theory posits that people do not perceive outcomes as final states of wealth or welfare, but rather as gains or losses in relation to some reference point. People are generally loss averse: the disutility generated by a loss is greater than the utility produced by a commensurate gain. Loss aversion is related to such phenomena as the status quo and omission biases, the endowment effect, and escalation of commitment. The book systematically analyzes the relationships between loss aversion and the law. It weaves together insights from cognitive and social psychology, neuropsychology, behavioral law and economics, experimental legal studies, economic analysis of law, normative ethics, moral psychology, and comparative law. It discusses diverse legal issues in private law and public law, national and international law, and substantive and procedural law. The book provides an overview of the psychological studies of loss aversion. It examines the effect of loss aversion on human behavior in contexts of particular interest to the law, including consumer behavior and litigation. It then discusses the impact of the law on people’s behavior through the framing of the choices they face. The book further highlights an intriguing compatibility between loss aversion and fundamental features of the law and various legal doctrines. Drawing on insights from the economic analysis of law and evolutionary psychology, it theorizes about the causes of this compatibility. The book points to the correlation among loss aversion, deontological and common-sense morality, and the law. Finally, it proposes many normative implications.Less
Prospect theory posits that people do not perceive outcomes as final states of wealth or welfare, but rather as gains or losses in relation to some reference point. People are generally loss averse: the disutility generated by a loss is greater than the utility produced by a commensurate gain. Loss aversion is related to such phenomena as the status quo and omission biases, the endowment effect, and escalation of commitment. The book systematically analyzes the relationships between loss aversion and the law. It weaves together insights from cognitive and social psychology, neuropsychology, behavioral law and economics, experimental legal studies, economic analysis of law, normative ethics, moral psychology, and comparative law. It discusses diverse legal issues in private law and public law, national and international law, and substantive and procedural law. The book provides an overview of the psychological studies of loss aversion. It examines the effect of loss aversion on human behavior in contexts of particular interest to the law, including consumer behavior and litigation. It then discusses the impact of the law on people’s behavior through the framing of the choices they face. The book further highlights an intriguing compatibility between loss aversion and fundamental features of the law and various legal doctrines. Drawing on insights from the economic analysis of law and evolutionary psychology, it theorizes about the causes of this compatibility. The book points to the correlation among loss aversion, deontological and common-sense morality, and the law. Finally, it proposes many normative implications.
Eyal Zamir
- Published in print:
- 2014
- Published Online:
- November 2014
- ISBN:
- 9780199972050
- eISBN:
- 9780190215064
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199972050.003.0005
- Subject:
- Law, Philosophy of Law
Chapter 5 analyzes the contribution of loss aversion to our understanding of how legal norms affect human perceptions and behavior—that is, how loss aversion is sometimes the output of legal norms. ...
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Chapter 5 analyzes the contribution of loss aversion to our understanding of how legal norms affect human perceptions and behavior—that is, how loss aversion is sometimes the output of legal norms. One prime example of this is the powerful “default effect” of legal norms on human behavior in contexts such as posthumous organ donation. Similarly, the chapter argues that the burden of proof in civil litigation is much more than a tiebreaker for cases of evidentiary tie—it sets the baseline against which judges assess the evidence presented to them. Finally, the chapter discusses the use of temporary legislation as a means of overcoming objections to legal reforms—legislation that in turn changes people’s reference point and hence tends to become permanent.Less
Chapter 5 analyzes the contribution of loss aversion to our understanding of how legal norms affect human perceptions and behavior—that is, how loss aversion is sometimes the output of legal norms. One prime example of this is the powerful “default effect” of legal norms on human behavior in contexts such as posthumous organ donation. Similarly, the chapter argues that the burden of proof in civil litigation is much more than a tiebreaker for cases of evidentiary tie—it sets the baseline against which judges assess the evidence presented to them. Finally, the chapter discusses the use of temporary legislation as a means of overcoming objections to legal reforms—legislation that in turn changes people’s reference point and hence tends to become permanent.
Irit Mevorach
- Published in print:
- 2018
- Published Online:
- April 2018
- ISBN:
- 9780198782896
- eISBN:
- 9780191826115
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198782896.003.0002
- Subject:
- Law, Company and Commercial Law, Private International Law
This chapter explores what the reasons for deviating from modified universalism in practice may be. To do so, it draws on behavioural international law and economics. The chapter argues that certain ...
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This chapter explores what the reasons for deviating from modified universalism in practice may be. To do so, it draws on behavioural international law and economics. The chapter argues that certain decision-making biases may play a role in cross-border insolvency and can explain both negative inclinations and instances of lack of cooperation, as well as the relative success of modified universalism. The key argument here is that instead of yielding to territorial inclinations, cross-border insolvency law has a debiasing role to play. It should attempt to align choices with optimal solutions, overcoming biases, and should also close gaps in the cross-border insolvency system in line with modified universalism.Less
This chapter explores what the reasons for deviating from modified universalism in practice may be. To do so, it draws on behavioural international law and economics. The chapter argues that certain decision-making biases may play a role in cross-border insolvency and can explain both negative inclinations and instances of lack of cooperation, as well as the relative success of modified universalism. The key argument here is that instead of yielding to territorial inclinations, cross-border insolvency law has a debiasing role to play. It should attempt to align choices with optimal solutions, overcoming biases, and should also close gaps in the cross-border insolvency system in line with modified universalism.
Eyal Zamir
- Published in print:
- 2014
- Published Online:
- November 2014
- ISBN:
- 9780199972050
- eISBN:
- 9780190215064
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199972050.003.0002
- Subject:
- Law, Philosophy of Law
This chapter focuses on the exploitation of consumers’ loss aversion by suppliers. One example is the effect of different framings of price and other attributes on consumer decisions (for example, ...
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This chapter focuses on the exploitation of consumers’ loss aversion by suppliers. One example is the effect of different framings of price and other attributes on consumer decisions (for example, cash discounts versus surcharges for credit). The chapter also examines how the limited availability of goods influences purchase decisions. It argues that escalation of commitment is one explanation for consumers’ failure to read standard-form contracts, and for the effectiveness of “low ball” and “bait-and-switch” marketing techniques. It explains why liberal return policies are a double-edged sword, given customers’ endowment effect. Finally, it draws attention to how suppliers exploit consumers’ status quo and omission biases to the suppliers’ advantage.Less
This chapter focuses on the exploitation of consumers’ loss aversion by suppliers. One example is the effect of different framings of price and other attributes on consumer decisions (for example, cash discounts versus surcharges for credit). The chapter also examines how the limited availability of goods influences purchase decisions. It argues that escalation of commitment is one explanation for consumers’ failure to read standard-form contracts, and for the effectiveness of “low ball” and “bait-and-switch” marketing techniques. It explains why liberal return policies are a double-edged sword, given customers’ endowment effect. Finally, it draws attention to how suppliers exploit consumers’ status quo and omission biases to the suppliers’ advantage.
Jim Leitzel
- Published in print:
- 2015
- Published Online:
- September 2015
- ISBN:
- 9780190213978
- eISBN:
- 9780190214005
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780190213978.003.0006
- Subject:
- Economics and Finance, Public and Welfare
People cannot be counted upon to make all of their decisions in a fully rational manner—and sometimes the law should take the possibility of such lapses into account. For instance, contracts that ...
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People cannot be counted upon to make all of their decisions in a fully rational manner—and sometimes the law should take the possibility of such lapses into account. For instance, contracts that appear to be wildly unfair need not be enforced by a court, under the doctrine of “unconscionability.” The Coase Theorem itself, one of the mainstays of Law and Economics analysis, presents a less optimistic picture in the face of “endowment effects,” where mere ownership of an asset raises the owner’s valuation of the asset. (Ironically, excessive optimism is a common departure from full rationality.) We might need to rethink the proper location of the Parthenon Marbles, the best way to compensate kidney donors, and desirable paths to re-legalizing currently illegal drugs, when rationality shortfalls are rife. Happiness and efficiency are not equivalent, so there will be situations when efficient laws do not promote hedonic well-being.Less
People cannot be counted upon to make all of their decisions in a fully rational manner—and sometimes the law should take the possibility of such lapses into account. For instance, contracts that appear to be wildly unfair need not be enforced by a court, under the doctrine of “unconscionability.” The Coase Theorem itself, one of the mainstays of Law and Economics analysis, presents a less optimistic picture in the face of “endowment effects,” where mere ownership of an asset raises the owner’s valuation of the asset. (Ironically, excessive optimism is a common departure from full rationality.) We might need to rethink the proper location of the Parthenon Marbles, the best way to compensate kidney donors, and desirable paths to re-legalizing currently illegal drugs, when rationality shortfalls are rife. Happiness and efficiency are not equivalent, so there will be situations when efficient laws do not promote hedonic well-being.
Scott Sehon
- Published in print:
- 2016
- Published Online:
- June 2016
- ISBN:
- 9780198758495
- eISBN:
- 9780191818394
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198758495.003.0004
- Subject:
- Philosophy, Moral Philosophy
One might object that the teleological account overemphasizes rationalizability and thereby ties agency too closely to rationality. This chapter clarifies and defends the teleological account by ...
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One might object that the teleological account overemphasizes rationalizability and thereby ties agency too closely to rationality. This chapter clarifies and defends the teleological account by responding to this sort of worry. First, rationality should not be identified with being a coldly logical person who fights off emotions, feelings, and impulses. Sometimes the most reasonable thing to do is to follow one’s heart rather than one’s head. Second, the teleological view has ample room for agents who occasionally do stupid things. Third, even the sort of ‘systematic irrationality’ to which agents are said to be prone is not a problem for the view: for example, those who regularly buy lottery tickets or who are subject to the endowment effect as described by Kahneman and his colleagues are not as systematically irrational as sometimes portrayed.Less
One might object that the teleological account overemphasizes rationalizability and thereby ties agency too closely to rationality. This chapter clarifies and defends the teleological account by responding to this sort of worry. First, rationality should not be identified with being a coldly logical person who fights off emotions, feelings, and impulses. Sometimes the most reasonable thing to do is to follow one’s heart rather than one’s head. Second, the teleological view has ample room for agents who occasionally do stupid things. Third, even the sort of ‘systematic irrationality’ to which agents are said to be prone is not a problem for the view: for example, those who regularly buy lottery tickets or who are subject to the endowment effect as described by Kahneman and his colleagues are not as systematically irrational as sometimes portrayed.
