Loss aversion: loss looms larger or gain looms smaller?

Last registered on March 13, 2023
View Trial History

Pre-Trial

Trial Information

General Information

Title
Loss aversion: loss looms larger or gain looms smaller?
RCT ID
AEARCTR-0010861
Initial registration date
March 07, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
March 13, 2023, 3:00 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
Singapore
Region
Singapore

Primary Investigator

Name
Wencong LI
Affiliation
National University of Singapore
Contact Primary Investigator

Other Primary Investigator(s)

PI Name
Songfa ZHONG
PI Affiliation

Additional Trial Information

Status
In development
Start date
2023-03-08
End date
2023-05-31
Keywords
Behavior, Lab
Additional Keywords
Prospect theory, Loss aversion
JEL code(s)
C91, D81
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
Loss aversion is a critical contribution of Prospect Theory to the study of decision-making. However, previous research on the construct of loss aversion in decisions under risk unveils mixed results. Some studies provide evidence for loss aversion, whereas others show a tendency for gains to be the same impactful as losses. We will employ two representations, gain-first framed and loss-first framed questions, to explore this discrepancy. In an experimental setting, we will elicit subjects’ general attitudes towards risks and losses through binary-choice questions. We will further test whether the lack of evidence supporting loss aversion in some studies is attributed to outcomes framed as gain exhibited first in mixed lotteries.
External Link(s)

Registration Citation

Citation
LI, Wencong and Songfa ZHONG. 2023. "Loss aversion: loss looms larger or gain looms smaller?." AEA RCT Registry. March 13. https://doi.org/10.1257/rct.10861-1.0
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Experimental Details

Interventions

Intervention(s)
The experiment involves two treatment conditions. The first treatment condition is that the relatively lower outcome is exhibited first for binary-outcome lotteries; and the second treatment condition is that relatively higher outcome is exhibited first for binary-outcome lotteries.

Additionally, the experiment consists of two sets of binary choices. The first set of binary choices measures risk preferences on the domain of gains and on the domain of losses separatly. The second set of binary choices, which is the main focus of the experiment, measures subjects’ sensitivities to losses compared to gains using mixed prospects.
Intervention Start Date
2023-03-30
Intervention End Date
2023-04-30

Primary Outcomes

Primary Outcomes (end points)
The estimates of the loss-aversion parameter under the "lower-outcome-first" treatment condition;
The estimates of the loss-aversion parameter under "higher-outcome-first" treatment condition.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Risk preferences measured on the domain of gains and on the domain of losses;
questionnaire responses (confidence, risk preferences, demographics background).
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
The experiment involves two treatment conditions. The first treatment condition is that the relatively lower outcome is exhibited first for binary-outcome lotteries; and the second treatment condition is that relatively higher outcome is exhibited first for binary-outcome lotteries. Each subject will be randomly allocated to one of the treatment groups and finish a set of binary-choice questions and a post-experimental questionnaire.

We use the similar choice paradigm ascribed by Kahneman & Tversky, (1979). The set of binary-choice questions involve two-outcome prospects in three domains based on outcome: positive prospects, negative prospects and mixed prospects. Subjects will indicate their preference for two alternatives in each question. Aggregating over all questions, we count the choices in the direction predicted by fourfold pattern and loss aversion in each treatment group.

Losses are deducted from the participation fee that subjects receive at the beginning of the experiment to ensure that the overall payment from the experiment is never negative.

After subjects complete the set of binary-choice questions, they will fill in a questionnaire that collects data on the following characteristics:
1. Confidence for decisions
2. Cognitive reflection test;
3. General risk attitude;
4. Demographics questions.

(REFERENCE: Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 1, 143–172. https://doi.org/10.2307/1914185)
Experimental Design Details
Randomization Method
Randomization of question format and order is implemented by Qualtrics.
Randomization Unit
Individual.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
250 subjects.
Sample size: planned number of observations
2250 (125 subjects x 18 questions) decisions in each treatment group.
Sample size (or number of clusters) by treatment arms
125 subjects/group (two treatment groups).
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
We determine the sample size from a power analysis using an alpha value of 0.05. The required sample size varied depending on the type of test. The largest required sample is testing a proportion of a specific decisions compared to 50%. A sample of 2250 decisions in each treatment group will be adequate to provide 0.95 power to detect a significant difference when the proportion of loss averse decisions deviated from 50% by more than 0.2 SD using a one-tailed binomial test.
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
Department of Economics Departmental Ethics Review Committee, National University of Singapore
IRB Approval Date
2022-12-15
IRB Approval Number
N/A
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials