Loss aversion criticism: How Solid Is the Twice Rule.
Loss aversion criticism argues the twice rule is accepted more widely than the evidence deserves. Yet larger studies still found people loss averse. In short, a loss often weighs more, around twice, but the size moves with person and situation.
The case the critics made.
In 2018, Gal and Rucker concluded that evidence does not show losses tend to be more impactful than gains. So, is loss aversion real? In their reading, it appears in some situations and not others. Therefore, they felt it had been overaccepted.
Answering loss aversion criticism with big samples.
In 2020, Mrkva, Johnson, Gächter and Herrmann tested five samples with 17,720 people. They found people of all knowledge levels were loss averse. However, older people were more so. Also, people who knew more about a feature, like fuel economy, were less loss averse about it.
Meanwhile, the 2024 loss aversion meta analysis put the average near twice.
When the number moves.
In 2015, Walasek and Stewart changed the range of gains and losses shown. As a result, they found loss aversion, none, and even the reverse. Their method was questioned, so this loss aversion criticism should not stand alone. Still, it shows a textbook number can shift.
Use loss aversion criticism on your own fears.
Write the part of your business you understand least, and rate your fear of losing there.
Spend one afternoon turning that unknown into a number, as chapter 3 showed.
Questions about loss aversion criticism.
Does loss aversion criticism mean the effect is fake?
No. The fair view is that losses often weigh more, near twice, but the size changes with conditions.
What makes loss aversion shrink?
Knowledge. People who understood a particular feature were less loss averse about that feature.
Who tends to be more loss averse?
The 2020 study found older people were more loss averse.
Read the whole chapter.
This lesson covers one section of chapter 9, “The price of the safe choice”. The book goes further, with the full evidence, the stories and every exercise.
Lessons in this chapter.
- 01 Losses loom larger than gains: Why You Refuse Good Bets.
- 02 Emergency fund before starting a business: Smart Order.
- 03 Opportunity cost neglect: The $300 You Never See.
- 04 Loss aversion criticism: How Solid Is the Twice Rule.
- 05 Ronald Wayne cofounder: Shrink the Risk, Don't Flee.
- 06 Opportunity cost exercise: Write Your Other Column.
- 07 Ashamed of my finances: Finish the Column Anyway.