Natural Rationality | decision-making in the economy of nature


The development of loss-aversion

An agent is loss-averse if the absolute value of loosing X (say, $100) is higher than the absolute value of gaining X: if loosing $100 "hurts more" than receiving it feels good. This bias is a robust finding in psychology. A new paper in Developmental Science indicates that loss-aversion unfolds, in the lifetime in three different stages. Children, adolescent and adults display, in the Iowa Gambling Task, different patterns that suggest a developmental continuum in loss-aversion:

  • (a) guessing with a slight tendency to consider frequency of loss to
  • (b) focusing on frequency of loss, to
  • (c) considering both frequency and amount of probabilistic loss.
Hence we all start with a sensitivity to losses (but only to their frequency), and when we are equipped with more complex cognitive aptitudes we pay attention to the value of losses. According to Huizenga et al, the development of proportional reasoning explains the increased complexity of loss-aversion.