When Do Losses Loom Larger Than Gains?
Published 5/1/2005
Author: Dan Ariely, Joel Huber, and Klaus Wertenbroch
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Executive Summary
Loss aversion, a key psychological challenge to standard economic theory, implies that people impute greater value to an item when forfeiting it than when acquiring it. This can create market inefficiencies because sellers are too reluctant to part with their possessions. In this comment on Novemsky and Kahneman’s (2005) article, the authors propose two factors that can moderate loss aversion: emotional attachment to the item to be traded and cognitive perspective on the trade. Emotional attachment alters loss aversion through the degree to which parting with an item involves negative feelings, whereas shifts in cognitive perspective explain when sellers weigh items that they give up more than buyers do. Similar to Novemsky and Kahneman’s (2005) goal, the authors try to more specifically characterize contexts in which losses loom larger than do gains and to suggest directions for future research into loss aversion.
Biography
Dan Ariely is Luis Alvarez Renta Professor of Management Science at the Sloan School of Management and the media laboratory, both at the Massachusetts Institute of Technology. Dr. Ariely is currently working on a new book, titled Dining Without Crumbs: The Art of Eating Over the Sink. This book not only provide helpful cooking approaches for the single male, but it also provides a deep insight into the male psychic. For more information see http://web.mit.edu/ariely/www.
Joel Huber is Professor of Marketing at the Fuqua School of Business at Duke University. He has taught at the business schools at Penn, Purdue and Columbia. He received his doctoral degree and his MBA from the Wharton School of the University of Pennsylvania and his bachelor’s degree from Princeton University. He has published more than 50 articles on consumer decision making, perceptual mapping, conjoint measurement, and choice models. He is Associate Editor for Marketing Science and is on the review boards for Journal of Consumer Research, Journal of Marketing Research, Journal of Consumer Psychology, and Marketing Letters.
Klaus Wertenbroch is Associate Professor of Marketing at INSEAD’s Asia campus in Singapore. He is an expert in strategic brand management and consumer decision making. He has taught in MBA, doctoral, and executive programs in the United States, Europe, and Asia for clients including Allianz, Cemex, IBM, Philip Morris, Lafarge, and Nissan. He earned his doctoral degree and his MBA from the University of Chicago. Before joining INSEAD, he was a faculty member at Duke University and at Yale University. His research has appeared in leading academic journals, such as Journal of Consumer Research, Journal of Marketing Research, and Marketing Science. It has been featured by the Financial Times, Sloan Management Review, Harvard Business Review , BBC Radio, National Public Radio, Nightly Business Report, and Psychology Today, among others. Professor Wertenbroch is currently on the editorial review boards of International Journal of Marketing Education, Journal of Consumer Research, and Journal of Marketing Research.
J Marketing Research, Volume 42, Number 2, May 2005
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