PSYC11H3 Lecture Notes - Lecture 8: Loss Aversion, Institute For Operations Research And The Management Sciences, Fair Coin
Document Summary
People are sensitive to gains and losses, not to total wealth. If people are sensitive to gains and losses, then they are sensitive to (even arbitrary) reference points. Example: version a: imagine you are about to purchase a desk from an antique dealer. You are trying to decide whether to use a credit card or pay cash. The dealer tells you that the price of the desk is if you pay cash but that there is a surcharge if you use your credit card. 18% say credit card: version b: the dealer tells you that the price of the desk is if you use your credit card but that there is a discount if you use cash. Because the status quo serves as the reference point, people are sensitive to deviations from the status quo raising taxes = a loss failing to cut taxes = no loss. Failing to increase salaries = no loss.
