Loss Aversion : A Study of Changes in Loss Aversion Towards a 50/50 Gamble

Loss aversion is a theory which states that losses loom larger than gains. Negative outcomes are weighted heavier than positive outcomes in decision making but could this weight change when different prospects are evaluated? This thesis focuses on how the loss aversion changes toward different magnitudes of a loss for young individuals when they are faced with a 50/50 chance of winning or losing a gamble. The loss aversion is tested toward six different magnitudes of a potential loss ranging from 100 kr to 4 000 kr. The loss aversion toward these six different magnitudes is then compared to examine how the loss aversion changes. This data was collected using a survey experiment that was digitally distributed to economics students at Linnaeus University in Växjö.The results from the subsequent analysis showed that the loss aversion was not constant towards all six losses. The loss aversion was different in ten out of fifteen pairwise comparisons. Respondents became more loss averse when the loss increased but the loss aversion did however seem to be less sensitive to increases in losses above the 1 000 kr mark