Losses, gains, and brains: Neuroeconomics can help to answer open questions about loss aversion

Journal of Consumer Psychology

Volumn 21, Issue 4, 2011, Pages 453-463

  Rick, Scott ^a  

^a UNIVERSITY OF MICHIGAN   (United States)

Author keywords

Decision making; Endowment effect; FMRI; Loss aversion; Neuroeconomics; Prospect theory

Indexed keywords

EID: 80053440869     PISSN: 10577408     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jcps.2010.04.004     Document Type: Article

References (130)

1. Ainslie G., Monterosso J. A marketplace in the brain?. Science 2004, 306(5695):421-423.
2. Ambler T., Braeutigam S., Stins J., Rose S., Swithenby S. Salience and choice: Neural correlates of shopping decisions. Psychology and Marketing 2004, 21(4):247-261.
3. Andrade E.B., Iyer G. Planned versus actual betting in sequential gambles. Journal of Marketing Research 2009, 46(3):372-383.
4. Ariely D., Huber J., Wertenbroch K. When do losses loom larger than gains?. Journal of Marketing Research 2005, 42(2):134-138.
5. Ashraf N., Camerer C.F., Loewenstein G. Adam Smith, behavioral economist. Journal of Economic Perspectives 2005, 19(3):131-145.
6. Barone M.J., Shimp T.A., Sprott D.E. Mere ownership revisited: A robust effect?. Journal of Consumer Psychology 1997, 6(3):257-284.
7. Barone M.J., Shimp T.A., Sprott D.E. The mere-ownership effect: 'More there than meets their eyes' or 'less there than they would have us believe'?. Journal of Consumer Psychology 1997, 6(3):299-311.
8. Bateman I., Kahneman D., Munro A., Starmer C., Sugden R. Testing competing models of loss aversion: An adversarial collaboration. Journal of Public Economics 2005, 89(8):1561-1580.
9. Beggan J.K. On the social nature of nonsocial perception: The mere ownership effect. Journal of Personality and Social Psychology 1992, 62(2):229-237.
10. Beggan J.K., Allison S.T. More there than meets their eyes: Support for the mere-ownership effect. Journal of Consumer Psychology 1997, 6(3):285-297.
11. Benartzi S., Thaler R.H. Myopic loss aversion and the equity premium puzzle. Quarterly Journal of Economics 1995, 110(1):73-92.
12. Benhabib J., Bisin A. Modeling internal commitment mechanisms and self-control: A neuroeconomics approach to consumption-saving decisions. Games and Economic Behavior 2005, 52(2):460-492.
13. Bernheim B.D., Rangel A. Addiction and cue-triggered decision processes. American Economic Review 2004, 94(5):1558-1590.
14. Breiter H.C., Aharon I., Kahneman D., Dale A., Shizgal P. Functional imaging of neural responses to expectancy and experience of monetary gains and losses. Neuron 2001, 30(2):619-639.
15. Brenner L., Rottenstreich Y., Sood S., Bilgin B. On the psychology of loss aversion: Possession, valence, and reversals of the endowment effect. Journal of Consumer Research 2007, 34(3):369-376.
16. Brocas I., Carrillo J.D. The brain as a hierarchical organization. American Economic Review 2008, 98(4):1312-1346.
17. Brown T.C. Loss aversion without the endowment effect, and other explanations for the WTA-WTP disparity. Journal of Economic Behavior and Organization 2005, 57(3):367-379.
18. Burson K., Faro D., Rottenstreich Y. Providing multiple units of a good attenuates the endowment effect. Working paper 2009, University of Michigan.
19. Buxton R.B. Introduction to functional magnetic resonance imaging: Principles and techniques 2002, Cambridge University Press, Cambridge.
20. Camerer C.F. Three cheers-psychological, theoretical, empirical-for loss aversion. Journal of Marketing Research 2005, 42(2):129-133.
21. Camerer C.F. Neuroeconomics: Using neuroscience to make economic predictions. Economic Journal 2007, 117:C26-C42.
22. Camerer C.F. Neuroeconomics: Opening the gray box. Neuron 2008, 60(3):416-419.
23. Camerer C.F., Babcock L., Loewenstein G., Thaler R. Labor supply of New York City cabdrivers: One day at a time. Quarterly Journal of Economics 1997, 112(2):407-441.
24. Camerer C.F., Loewenstein G., Prelec D. Neuroeconomics: How neuroscience can inform economics. Journal of Economic Literature 2005, 43(1):9-64.
25. Caplin A., Dean M. The neuroeconomic theory of learning. American Economic Review Papers and Proceedings 2007, 97(2):148-152.
26. Carmon Z., Ariely D. Focusing on the foregone: How value can appear so different to buyers and sellers. Journal of Consumer Research 2000, 27(3):360-370.
27. Carmon Z., Wertenbroch K., Zeelenberg M. Option attachment: When deliberating makes choosing feel like losing. Journal of Consumer Research 2003, 30(1):15-29.
28. Dual-process theories in social psychology 1999, Guilford, New York. S. Chaiken, Y. Trope (Eds.).
29. Cohen J.D. The vulcanization of the human brain: A neural perspective on interactions between cognition and emotion. Journal of Economic Perspectives 2005, 19(4):3-24.
30. De Martino B., Camerer C.F., Adolphs R. Amygdala damage eliminates monetary loss aversion. Proceedings of the National Academy of Sciences 2010, 107(8):3788-3792.
31. De Martino B., Kumaran D., Holt B., Dolan R.J. The neurobiology of reference-dependent value computation. Journal of Neuroscience 2009, 29(12):3833-3842.
32. Dickhaut J., McCabe K., Nagode J.C., Rustichini A., Smith K., Pardo J.V. The impact of the certainty context on the process of choice. Proceedings of the National Academy of Sciences 2003, 100(6):3536-3541.
33. Dietvorst R.C., Verbeke W.J.M.I., Bagozzi R.P., Yoon C., Smits M., van der Lugt A. A sales force-specific theory-of-mind scale: Tests of its validity by classical methods and functional magnetic resonance imaging. Journal of Marketing Research 2009, 46(5):653-668.
34. Egidi G., Nusbaum H.C., Cacioppo J.T. Neuroeconomics: Foundational issues and consumer relevance. Handbook of consumer psychology 2008, 1177-1214. Psychology Press, New York. C.P. Haugtvedt, P.M. Herr, F.R. Kardes (Eds.).
35. Eisenberger N.I., Lieberman M.D., Williams K.D. Does rejection hurt? An fMRI study of social exclusion. Science 2003, 302(5643):290-292.
36. Erev I., Ert E., Yechiam E. Loss aversion, diminishing sensitivity, and the effect of experience on repeated decisions. Journal of Behavioral Decision Making 2008, 21(5):575-597.
37. Ert E., Erev I. On the descriptive value of loss aversion in decisions under risk. Harvard business school working paper 10-056 2010.
38. Figner B., Knoch D., Johnson E.J., Krosch A.R., Lisanby S.H., Fehr E., et al. Lateral prefrontal cortex and self-control in intertemporal choice. Nature Neuroscience 2010, 13(5):523-524.
39. Fudenberg D., Levine D.K. A dual-self model of impulse control. American Economic Review 2006, 96(5):1449-1476.
40. Gachter S., Johnson E.J., Herrmann A. Individual-level loss aversion in riskless and risky choices. Working paper 2007, University of Nottingham.
41. Gal D. A psychological law of inertia and the illusion of loss aversion. Judgment and Decision Making 2006, 1(1):23-32.
42. Galanter E. Utility functions for nonmonetary events. American Journal of Psychology 1990, 103(4):449-470.
43. Gehring W.J., Willoughby A.R. The medial frontal cortex and the rapid processing of monetary gains and losses. Science 2002, 295(5563):2279-2282.
44. Glimcher P.W., Camerer C.F., Fehr E., Poldrack R.A. Introduction: A brief history of neuroeconomics. Neuroeconomics: Decision making and the brain 2008, 1-12. Academic Press, London. P.W. Glimcher, C.F. Camerer, E. Fehr, R.A. Poldrack (Eds.).
45. Glimcher P.W., Kable J., Louie K. Neuroeconomic studies of impulsivity: Now or just as soon as possible?. American Economic Review Papers and Proceedings 2007, 97(2):142-147.
46. Gneezy U., Potters J. An experiment on risk taking and evaluation periods. Quarterly Journal of Economics 1997, 112(2):631-645.
47. Gul F., Pesendorfer W. The case for mindless economics. The foundations of positive and normative economics 2008, 3-39. Oxford University Press, Oxford. A. Caplin, A. Shotter (Eds.).
48. Harbaugh W.T., Mayr U., Burghart D.R. Neural responses to taxation and voluntary giving reveal motives for charitable donations. Science 2007, 316(5831):1622-1625.
49. Hardie B.G.S., Johnson E.J., Fader P.S. Modeling loss aversion and reference dependence effects on brand choice. Marketing Science 1993, 12(4):378-394.
50. Hare T.A., Camerer C.F., Rangel A. Self-control in decision-making involves modulation of the vmPFC valuation system. Science 2009, 324(5927):646-648.
51. Hariri A.R., Brown S.M., Williamson D.E., Flory J.D., de Wit H., Manuck S.B. Preference for immediate over delayed rewards is associated with magnitude of ventral striatal activity. Journal of Neuroscience 2006, 26(51):13213-13217.
52. Harnick F., Van Dijk E., Van Beest I., Mersmann P. When gains loom larger than losses: Reversed loss aversion for small amounts of money. Psychological Science 2007, 18(12):1099-1105.
53. Harrison G.W. Neuroeconomics: A critical reconsideration. Economics and Philosophy 2008, 24(3):303-344.
54. Hedgcock W., Rao A.R. Trade-off aversion as an explanation for the attraction effect: A functional magnetic resonance study. Journal of Marketing Research 2009, 46(1):1-13.
55. Hochman G., Yechiam E. Loss aversion in the eye and in the heart: The autonomic nervous system's responses to losses. Journal of Behavioral Decision Making 2011, 24(2):140-156.
56. Hoffman M.B. The neuroeconomic path of the law. Philosophical Transactions of the Royal Society of London. Series B, Biological Sciences 2004, 359(1451):1667-1676.
57. Hsee C.K., Rottenstreich Y. Music, pandas, and muggers: On the affective psychology of value. Journal of Experimental Psychology. General 2004, 133(1):23-30.
58. Hsu M., Bhatt M., Adolphs R., Tranel D., Camerer C.F. Neural systems responding to degrees of uncertainty in human decision-making. Science 2005, 310(5754):1680-1683.
59. Huettel S.A., Payne J.W. Integrating neural and decision sciences: Convergence and constraints. Journal of Marketing Research 2009, 46(1):14-17.
60. Huettel S.A., Song A.W., McCarthy G. Functional magnetic resonance imaging 2004, Sinauer, Sunderland, MA.
61. Johnson E.J. Man, my brain is tired: Linking depletion and cognitive effort in choice. Journal of Consumer Psychology 2008, 18(1):14-16.
62. Johnson E.J., Gachter S., Herrmann A. Exploring the nature of loss aversion. Working paper 2006, Columbia University.
63. Johnson E.J., Goldstein D. Do defaults save lives?. Science 2003, 302:1338-1339.
64. Johnson E.J., Häubl G., Keinan A. Aspects of endowment: A query theory of value construction. Journal of Experimental Psychology. Learning, Memory, and Cognition 2007, 33(3):461-474.
65. Kable J.W., Glimcher P.W. The neural correlates of subjective value during intertemporal choice. Journal of Neuroscience 2007, 10(12):1625-1633.
66. Kahneman D., Knetsch J.L., Thaler R.H. Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy 1990, 98(6):1325-1348.
67. Kahneman D., Lovallo D. Timid choices and bold forecasts: A cognitive perspective on risk taking. Management Science 1993, 39(1):17-31.
68. Kahneman D., Tversky A. Prospect theory: An analysis of decision under risk. Econometrica 1979, 47(2):263-291.
69. Kahneman D., Wakker P.P., Sarin R. Back to Bentham? Explorations of experienced utility. Quarterly Journal of Economics 1997, 112(2):375-405.
70. Kardes F.R. Consumer judgment and decision processes. Handbook of social cognition 1994, Vol. 2:399-466. Erlbaum, Hillsdale, NJ.
71. Keren G., Schul Y. Two is not always better than one: A critical evaluation of two-system theories. Perspectives on Psychological Science 2009, 4(6):533-550.
72. Kermer D.A., Driver-Linn E., Wilson T.D., Gilbert D.T. Loss aversion is an affective forecasting error. Psychological Science 2006, 17(8):649-653.
73. Knoch D., Pascual-Leone A., Meyer K., Treyer V., Fehr E. Diminishing reciprocal fairness by disrupting the right prefrontal cortex. Science 2006, 314(5800):829-832.
74. Knoch D., Schneider F., Schunk D., Hohmann M., Fehr E. Disrupting the prefrontal cortex diminishes the human ability to build a good reputation. Proceedings of the National Academy of Sciences 2009, 106(49):20895-20899.
75. Knutson B., Fong G.W., Bennett S.M., Adams C.M., Hommer D. A region of mesial prefrontal cortex tracks monetarily rewarding outcomes: Characterization with rapid event-related fMRI. NeuroImage 2003, 18(2):263-272.
76. Knutson B., Greer S.M. Anticipatory affect: Neural correlates and consequences for choice. Philosophical Transactions of the Royal Society of London. Series B, Biological Sciences 2008, 363(1511):3771-3786.
77. Knutson B., Rick S., Wimmer G.E., Prelec D., Loewenstein G. Neural predictors of purchases. Neuron 2007, 53(1):147-156.
78. Knutson B., Wimmer G.E., Rick S., Hollon N.G., Prelec D., Loewenstein G. Neural antecedents of the endowment effect. Neuron 2008, 58(5):814-822.
79. Kuhnen C.M., Knutson B. The neural basis of financial risk taking. Neuron 2005, 47(5):763-770.
80. Laibson D. Golden eggs and hyperbolic discounting. Quarterly Journal of Economics 1997, 112(2):443-477.
81. Loewenstein, G., & O'Donoghue, T. (2004). Animal spirits: Affective and deliberative processes in economic behavior. Working paper. Carnegie Mellon University.
82. Lee L., Amir O., Ariely D. In search of Homo economicus: Cognitive noise and the role of emotion in preference consistency. Journal of Consumer Research 2009, 36(2):173-187.
83. Lerner J.S., Small D.A., Loewenstein G. Heart strings and purse strings: Carryover effects of emotions on economic decisions. Psychological Science 2004, 15(5):337-341.
84. List J.A. Does market experience eliminate market anomalies?. Quarterly Journal of Economics 2003, 118(1):41-71.
85. Loewenstein G., Rick S., Cohen J.D. Neuroeconomics. Annual Review of Psychology 2008, 59:647-672.
86. Logothetis N.K. What we can do and what we cannot do with fMRI. Nature 2008, 453(7197):869-878.
87. Markowitz H. The utility of wealth. Journal of Political Economy 1952, 60(2):151-158.
88. Masten C.L., Eisenberger N.I., Borofsky L.A., Pfeifer J.H., McNealy K., Mazziotta J.C., et al. Neural correlates of social exclusion during adolescence: Understanding the distress of peer rejection. Social Cognitive and Affective Neuroscience 2009, 4(2):143-157.
89. McClure S.M., Laibson D.I., Loewenstein G., Cohen J.D. Separate neural systems value immediate and delayed monetary rewards. Science 2004, 306(5695):503-507.
90. McClure S.M., Ericson K.M., Laibson D.I., Loewenstein G., Cohen J.D. Time discounting for primary rewards. Journal of Neuroscience 2007, 27(21):5796-5804.
91. McGraw, P., Larsen, J. T., Kahneman, D., and Schkade, D. (in press). Comparing gains and losses. Psychological Science.
92. Mellers B.A., Schwartz A., Ho K., Ritov I. Decision affect theory: Emotional reactions to the outcomes of risky options. Psychological Science 1997, 8(6):423-429.
93. Metcalfe J., Mischel W. A hot/cool-system analysis of delay of gratification: Dynamics of willpower. Psychological Review 1999, 106(1):3-19.
94. Morewedge C.K., Shu L.L., Gilbert D.T., Wilson T.D. Bad riddance or good rubbish? Ownership and not loss aversion causes the endowment effect. Journal of Experimental Social Psychology 2009, 45(4):947-951.
95. Nayakankuppam D., Mishra H. The endowment effect: Rose-tinted and dark-tinted glasses. Journal of Consumer Research 2005, 32(3):390-395.
96. Novemsky N., Kahneman D. The boundaries of loss aversion. Journal of Marketing Research 2005, 42(2):119-128.
97. Paulus M.P., Feinstein J.S., Castillo G., Simmons A.N., Stein M.B. Dose-dependent decrease of activation in bilateral amygdala and insula by lorazepam during emotion processing. Archives of General Psychiatry 2005, 62(3):282-288.
98. Peck J., Shu S.B. The effect of mere touch on perceived ownership. Journal of Consumer Research 2009, 36(3):434-447.
99. Plassmann H., O'Doherty J., Shiv B., Rangel A. Marketing actions can modulate neural representations of experienced pleasantness. Proceedings of the National Academy of Sciences 2008, 105(3):1050-1054.
100. Plott C.R., Zeiler K. The willingness to pay-Willingness to accept gap, the "endowment effect" subject misconceptions, and experimental procedures for eliciting valuations. American Economic Review 2005, 95(3):530-545.
101. Plott C.R., Zeiler K. Exchange asymmetries incorrectly interpreted as evidence of endowment effect theory and prospect theory?. American Economic Review 2007, 97(4):1449-1466.
102. Poldrack R.A. Can cognitive processes be inferred from neuroimaging data?. Trends in Cognitive Sciences 2006, 10(2):59-63.
103. Poldrack R.A., Halchenko Y.O., Hanson S.J. Decoding the large-scale structure of brain function by classifying mental states across individuals. Psychological Science 2009, 20(11):1364-1372.
104. Quattrone G.A., Tversky A. Contrasting rational and psychological analyses of political choice. American Political Science Review 1988, 82(3):719-736.
105. Rao A.R., Monroe K.B. The effect of price, brand name, and store name on buyers' perceptions of product quality: An integrative review. Journal of Marketing Research 1989, 26(3):351-357.
106. Reb J., Connolly T. Possession, feelings of ownership and the endowment effect. Judgment and Decision Making 2007, 2(2):107-114.
107. Rutledge, R., and Glimcher, P. (2009). Asymmetric BOLD responses to positive and negative outcomes. Poster presented at the annual meeting of the Society for Neuroeconomics.
108. Samuelson W., Zeckhauser R. Status quo bias in decision making. Journal of Risk and Uncertainty 1988, 1(1):7-59.
109. Sanfey A.G., Rilling J.K., Aronson J.A., Nystrom L.E., Cohen J.D. The neural basis of economic decision-making in the ultimatum game. Science 2003, 300(5626):1755-1758.
110. Schepanski A., Shearer T. A prospect theory account of the income tax withholding phenomenon. Organizational Behavior and Human Decision Processes 1995, 63(2):174-186.
111. Shane S. Introduction to the focused issue on the biological basis of business. Organizational Behavior and Human Decision Processes 2009, 110(2):67-69.
112. Shiv B. Emotions, decisions, and the brain. Journal of Consumer Psychology 2007, 17(3):174-178.
113. Shiv B., Fedorikhin A. Heart and mind in conflict: The interplay of affect and cognition in consumer decision making. Journal of Consumer Research 1999, 26(3):278-292.
114. Simonson I., Drolet A. Anchoring effects on consumers' willingness-to-pay and willingness-to-accept. Journal of Consumer Research 2004, 31(3):681-690.
115. Sokol-Hessner P., Hsu M., Curley N.G., Delgado M.R., Camerer C.F., Phelps E.A. Thinking like a trader selectively reduces individuals' loss aversion. Proceedings of the National Academy of Sciences 2009, 106(13):5035-5040.
116. Stanovich K.E., West R.F. Individual differences in reasoning: Implications for the rationality debate?. Behavioral and Brain Sciences 2000, 23(5):645-726.
117. Strack F., Werth L., Deutsch R. Reflective and impulsive determinants of consumer behavior. Journal of Consumer Psychology 2005, 16(3):205-216.
118. Strahilevitz M.A., Loewenstein G. The effect of ownership history on the valuation of objects. Journal of Consumer Research 1998, 25(3):276-289.
119. Thaler R.H. Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization 1980, 1(1):39-60.
120. Thaler R.H., Tversky A., Kahneman D., Schwartz A. The effect of myopia and loss aversion on risk taking: An experimental test. Quarterly Journal of Economics 1997, 112(2):647-661.
121. Tom S.M., Fox C.R., Trepel C., Poldrack R.A. The neural basis of loss aversion in decision-making under risk. Science 2007, 315(5811):515-518.
122. Tremeau F., Brady M., Saccente E., Moreno A., Epstein H., Citrome L., et al. Loss aversion in schizophrenia. Schizophrenia Research 2008, 103(1):121-128.
123. Tversky A., Kahneman D. Loss aversion in riskless choice: A reference-dependent model. Quarterly Journal of Economics 1991, 106(4):1039-1061.
124. Weaver R., Frederick S. Transaction disutility and the endowment effect. Working paper 2008, Harvard University.
125. Weber B., Aholt A., Neuhaus C., Trautner P., Elger C.E., Teichert T. Neural evidence for reference-dependence in real-market-transactions. NeuroImage 2007, 35(1):441-447.
126. Weisberg D.S., Keil F.C., Goodstein J., Rawson E., Gray J.R. The seductive allure of neuroscience explanations. Journal of Cognitive Neuroscience 2008, 20(3):470-477.
127. Yoon C., Gonzalez R., Bettman J.R. Using fMRI to inform marketing research: Challenges and opportunities. Journal of Marketing Research 2009, 46(1):17-19.
128. Yoon C., Gutchess A.H., Feinberg D., Polk T.A. A functional magnetic resonance imaging study of neural dissociations between brand and person judgments. Journal of Consumer Research 2006, 33(1):31-40.
129. Zak P.J. Neuroeconomics. Philosophical Transactions of the Royal Society of London. Series B, Biological Sciences 2004, 359(1451):1737-1748.
130. Zhang Y., Fishbach A. The role of anticipated emotions in the endowment effect. Journal of Consumer Psychology 2005, 15(4):316-324.