2004), “Attitudes on Gain and Loss Lotteries: A Simple Experiment,” Discussion Paper 0402, School of Economic Studies

Abstract: A new definition of loss aversion is proposed and tested. Thirty-one students participated in experiments on lotteries involving small scale real gains and losses. At the aggregate level, approximately 60 % of the choices are in the direction of loss aversion. The analysis at the individual level shows that, compared to loss seekers, more than twice as many are loss averters, the remaining subjects being unclassified. Comparing these results with risk behavior involving gain only lotteries shows a strong polarization effect: when loss outcomes are introduced, a majority of subjects shift from unclassified risk attitude in the domain of gains towards loss aversion, but some exhibit loss seeking. A strong gender effect is also observed. Proportionally more women are sensitive to losses. There is statistical evidence that in these binary choices the sign of common outcomes has influence on choice behavior, which is in contrast to the predictions of comonotonic independence, the core principle of rank-dependent utility theories