Loss Aversion

People hate losses.. Roughly speaking, losing something makes you twice as miserable as gaining the same thing makes you happy. In more technical language, people are “loss averse.” How do we know this?

Consider a simple experiment. Half the students in a class are given coffee mugs with the insignia of their home university embossed on it. The students who did not get a mug are asked to examine their neighbor’s mugs. The n mug owners are invited to sell their mugs and nonowners are invited to busy them. They do so by answering the question “At each of the following prices, indicate whether you would be willing to (give up your mug/buy a mug).” 

The results show that those with mugs demand roughly twice as much to give up their mugs as others are willing to pay to get one. Thousands of mugs have been used in dozens of replications of this experiment, but the results are nearly always the same. Once I have a mug, I don’t want to give it up. But if I don’t have one, I don’t feel an urgent need to buy one.  

What this means is that people do not assign specific values to objects. When they have to give something up, they are hurt more than they are pleased if they acquire the very same things.

Richard Thaler & Cass Sunstein, Nudge