A recent paper by David Gal and Derek Rucker in the Journal of Consumer Psychology sets out a strong critique of loss aversion - one of the most 'successful' and basic ideas in behavioural economics. So, do we really need to ditch loss aversion? Well the first thing to point out is that the paper by Gal and Rucker is considerably milder than a blog-post on Scientific American, by David Gal, that has got a lot of publicity. Personally, I would agree with a lot written in the paper but disagree with just about everything in the blog-post. So, what are the issues? Loss aversion says that losses loom larger than gains. In their paper, Gal and Rucker basically argue that losses do not always loom larger than gains. Fair enough. Indeed, this, of itself, is not particularly new. But, the 'standard' way of dealing with this 'problem' is to move around the reference point so that losses are no longer losses. For instance, Novemsky and Kahneman in a 2005 paper on &#
Some random thoughts on game theory, behavioural economics, and human behaviour