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Attracting forestland owners to participate in carbon markets can be challenging for several reasons including offset price volatility, legislative uncertainties, high costs of offset project development, long contract lengths, and landowners' risk preferences. In this article, we elicit risk preferences and investigate Myopic Loss Aversion (MLA) of forestland owners using an economic experiment. The economic experiment is a betting game and we find that forestland owners exhibit MLA because they bet higher when returns from their investments are evaluated less frequently. Our results provide valuable information for developing carbon market protocols, especially in setting optimal evaluation periods of forest carbon offset projects.

The so called flat-rate bias is a well documented phenomenon caused by consumers' desire to be insured against fluctuations in their billing amounts. This paper shows that expectation-based loss aversion provides a formal explanation for this bias. We solve for the optimal two-part tariff when contracting with loss-averse consumers who are uncertain about their demand. The optimal tariff is a flat rate if marginal cost of production is low compared to a consumer's degree of loss aversion and if there is enough variation in the consumer's demand. Moreover, if consumers differ with respect to the degree of loss aversion, firms' optimal menu of tariffs typically comprises a flat-rate contract.

We consider a model of firm pricing and consumer choice, where consumers are loss averse and uncertain about their future demand. Possibly, consumers in our model prefer a flat rate to a measured tariff, even though this choice does not minimize their expected billing amount - a behavior in line with ample empirical evidence. We solve for the profit-maximizing two-part tariff, which is a flat rate if (a) marginal costs are not too high, (b) loss aversion is intense, and (c) there are strong variations in demand. Moreover, we analyze the optimal nonlinear tariff. This tariff has a large flat part when a flat rate is optimal among the class of two-part tariffs.

We quantify differences in attitudes to loss from individuals with different demographic, personal and socio-economic characteristics. Our data are based on responses from an online survey of a representative sample of over 4,000 UK residents and allow us to produce the most comprehensive analysis of the heterogeneity of loss aversion measures to date. Using the canonical model proposed by Tversky and Kahneman (1992), we show that responses for the population as a whole differ substantially from those typically provided by students (who form the basis of many existing studies of loss aversion). The average aversion to a loss of £500 relative to a gain of the same amount is 2.41, but loss aversion correlates significantly with characteristics such as gender, age, education, financial knowledge, social class, employment status, management responsibility, income, savings and home ownership. Other related factors include marital status, number of children, ease of savings, rainy day fund, personality type, emotional state, newspaper and political party. However, once we condition on all the profiling characteristics of the respondents, some factors, in particular gender, cease to be significant, suggesting that gender differences in risk and loss attitudes might be due to other factors, such as income differences.

People are motivated to avoid losses. In the context of politics, studies consistently show that the threat of losses increases support for risky public policies more than the promise of gains. Here, we predict that this loss aversion is calibrated by individual differences related to one's ability to accommodate resource loss, and we investigate how these individual differences moderate reactions to the threat of losses and the promise of gains. Results from large-N experiments consistently demonstrate that this moderation effect crucially depends on whether the resource loss relates to oneself or one's group—whether the setting is personal or political. Consistent with classic assumptions, individuals with inferior abilities to cope with resource loss are more loss averse in personal settings. In political settings where group resources are threatened, effects reverse: Individuals with superior resources and a more central position within the group consistently respond more to the prospect of loss. As discussed, these findings have important implications for our understanding of why and for whom the threat of loss motivates risky personal and political choices. By consequence, the findings also shed novel light on the psychological underpinnings of recent risky political events.

Kahneman and Tversky (1979) first demonstrated that when individuals decide whether or not to accept a gamble, potential losses receive more weight than possible gains in the decision. This phenomenon is referred to as loss aversion. We investigated how loss aversion in risky financial decisions is influenced by sudden changes to wealth, employing both behavioral and neurobiological measures. We implemented an fMRI experimental paradigm, based on that employed by Tom et al. (2007). There are two treatments, called RANDOM and CONTINGENT. In RANDOM, the baseline setting, the changes to wealth, referred to as wealth shocks in economics, are independent of the actual choices participants make. Under CONTINGENT, we induce the belief that the changes in income are a consequence of subjects' own decisions. The magnitudes and sequence of the shocks to wealth are identical between the CONTINGENT and RANDOM treatments. We investigated whether more loss aversion existed in one treatment than another. The behavioral results showed significantly greater loss aversion in CONTINGENT compared to RANDOM after a negative wealth shock. No differences were observed in the response to positive shocks. The fMRI results revealed a neural loss aversion network, comprising the bilateral striatum, amygdala and dorsal anterior cingulate cortex that was common to the CONTINGENT and RANDOM tasks. However, the ventral prefrontal cortex, primary somatosensory cortex and superior occipital cortex, showed greater activation in response to a negative change in wealth due to individual's own decisions than when the change was exogenous. These results indicate that striatum activation correlates with loss aversion independently of the source of the shock, and that the ventral prefrontal cortex (vPFC) codes the experimental manipulation of agency in one's actions influencing loss aversion. ; University Grants Commission (UGC), Government of India, Centre of Excellence Grant; Comision Nacional de Investigacion Cientifica y Tecnologica de Chile (Conicyt) through Fondo Nacional de Desarrollo Cientifico y Tecnologico, Fondecyt Regular [1171313, 1171320]; BMBF [01DQ13004]; Proyectos de Investigacion Interdisciplinaria, Vicerrectoria de Investigacion (VRI), Pontificia Universidad Catolica de Chile [15/2013]; CONICYT-PCHA/Magister Nacional [2014-22140196]; CONICYT-PIA Anillo [ACT1416, ACT1414] ; This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at repository@u.library.arizona.edu.

We derive a mathematical extension of the social discount rate (SDR) in such a way that we can valuate intergenerational startups financed with personal and government funds at the aggregate level. The results imply that the precise determination of the SDR can change the financial priority of investment. Therefore, we recommend government officials to include factors of economic growth (wealth effect), intergenerational prevention (precautionary effect), loss aversion, and the specific risk of the business in the valuation of new ventures and in the estimation of the social discount rate to be more representative of the social utility. Our contribution lies in including a risk premium from the firm's average non-systematic risk and the loss aversion of a representative investor in estimating the SDR. ; La tasa de descuento social empresarial: prima de riesgo y aversión a las pérdidas en nuevas empresasEn esta investigación se deriva matemáticamente una extensión de la tasa de descuento social para valorar nuevas empresas intergeneracionales financiadas con capital personal y con fondos gubernamentales a nivel agregado. Los resultados implican que la determinación precisa de la tasa social de descuento cambia la prioridad financiera al invertir. Por tanto, recomendamos a los oficiales del gobierno que incluyan factores de crecimiento económico (efecto riqueza), prevención intergeneracional (efecto de precaución), aversión a las pérdidas y el riesgo específico de los negocios en la valoración de nuevos emprendimientos y en la determinación de la tasa de descuento social para ser más representativa de la utilidad social. Nuestra contribución radica en incluir una prima promedio por riesgo no sistemático de la empresa y la aversión a la pérdida de un inversionista representativo en la estimación de la tasa de descuento social.

We derive a mathematical extension of the social discount rate (SDR) in such a way that we can valuate intergenerational startups financed with personal and government funds at the aggregate level. The results imply that the precise determination of the SDR can change the financial priority of investment. Therefore, we recommend government officials to include factors of economic growth (wealth effect), intergenerational prevention (precautionary effect), loss aversion, and the specific risk of the business in the valuation of new ventures and in the estimation of the social discount rate to be more representative of the social utility. Our contribution lies in including a risk premium from the firm's average non-systematic risk and the loss aversion of a representative investor in estimating the SDR.

Punishment policies on the inappropriate treatment of dead hogs play a key role in safeguarding public health and environmental protection. These policies aim to regulate the behavior of farmers and promote the development of sustainable agriculture. Farmers&rsquo ; evaluation of a policy can be used to measure its effectiveness, and loss aversion is a factor that has been little studied. This study surveyed 404 hog farmers in China, and analyzed the factors that influenced their evaluation of the penalties for the inappropriate treatment of dead hogs during 2016 and 2017. We used three indicators for the evaluation of the penalties: the degree of necessity, implementation, and effectiveness. Special attention was paid to farmers&rsquo ; aversion to financial penalties and police detention time, which was elicited using economic experiments. The results show that farmers are more likely to be averse to police detention time than financial penalties, and suggest that the level of each indicator needs to be increased. The results from an ordered Probit model show that there are both similarities and differences between the formation paths of the three indicators. An aversion to financial penalties will help to improve the degree of implementation. An aversion to police detention time will lead to a negative trend in the degree of effectiveness. An in-depth analysis of the factors that influence farmers&rsquo ; evaluation of policies to punish inappropriate treatment of dead hogs may provide a basis for the design of government policies to improve environmental protection performance.

Loss aversion is a core concept in prospect theory that refers to people's asymmetric attitudes with respect to gains and losses. More specifically, losses loom larger than gains. With the capability of loss aversion to explain economic phenomena, some of which are puzzling under expected utility theory, this concept has received significant attention. This study develops a behavioral model of loss aversion to explain the development decisions by residential property developers in the People's Republic of China. Under the leasehold property right system, real estate development has two stages - first to lease land from the government, and then to develop the property according to the lease terms. This presents a unique opportunity to test the presence and effect of loss aversion in real estate development decisions. More specifically, this study determines when the land premium paid by a developer is substantially higher than the market value, whether and how this "paper loss" will affect the pricing of the housing products and development time of the project in future development. We use a sample of land and house transaction records from Beijing to test the hypothesis. This is the first study to use a semi-parametric model in estimating developers' loss aversion. Results show that developers are most prone to loss aversion bias around the reference point or when facing large losses. The results also suggest that loss aversion contributes to the cyclical trading pattern in housing markets.

Punishment policies on the inappropriate treatment of dead hogs play a key role in safeguarding public health and environmental protection. These policies aim to regulate the behavior of farmers and promote the development of sustainable agriculture. Farmers' evaluation of a policy can be used to measure its effectiveness, and loss aversion is a factor that has been little studied. This study surveyed 404 hog farmers in China, and analyzed the factors that influenced their evaluation of the penalties for the inappropriate treatment of dead hogs during 2016 and 2017. We used three indicators for the evaluation of the penalties: the degree of necessity, implementation, and effectiveness. Special attention was paid to farmers' aversion to financial penalties and police detention time, which was elicited using economic experiments. The results show that farmers are more likely to be averse to police detention time than financial penalties, and suggest that the level of each indicator needs to be increased. The results from an ordered Probit model show that there are both similarities and differences between the formation paths of the three indicators. An aversion to financial penalties will help to improve the degree of implementation. An aversion to police detention time will lead to a negative trend in the degree of effectiveness. An in-depth analysis of the factors that influence farmers' evaluation of policies to punish inappropriate treatment of dead hogs may provide a basis for the design of government policies to improve environmental protection performance.

This paper empirically and jointly analyses the relations between risk aversion, standard time discounting, present bias, and loss aversion and household stated adoption of low to high stake energy efficiency technologies (EETs) (light emitting diodes (LEDs), energy efficient appliances, and retrofit measures). The analysis relies on a large representative sample drawn from eight European Union countries. Preferences over time, risk and losses were elicited and jointly estimated from participant choices in incentivized, context-free multiple price list experiments. The findings from econometrically estimating EET adoption equations suggest that present-biased individuals are less likely to adopt EETs. They also provide (weak) evidence that individuals which are more risk-averse, or more loss-averse, or which exhibit a lower discount factor are less likely to adopt EETs. Finally, omitting one or several of the time and risk or loss-aversion parameters when estimating the EET adoption equations did not appear to cause omitted variable bias.

This paper empirically and jointly analyses the relations between risk aversion, standard time discounting, present bias, and loss aversion and household stated adoption of low to high stake energy efficiency technologies (EETs) (light emitting diodes (LEDs), energy efficient appliances, and retrofit measures). The analysis relies on a large representative sample drawn from eight European Union countries. Preferences over time, risk and losses were elicited and jointly estimated from participant choices in incentivized, context-free multiple price list experiments. The findings from econometrically estimating EET adoption equations suggest that present-biased individuals are less likely to adopt EETs. They also provide (weak) evidence that individuals which are more risk-averse, or more loss-averse, or which exhibit a lower discount factor are less likely to adopt EETs. Finally, omitting one or several of the time and risk or loss-aversion parameters when estimating the EET adoption equations did not appear to cause omitted variable bias.

We focus on the preferences of an extremely salient group of highly-experienced individuals who are entrusted with making decisions that affect the lives of millions of their citizens, heads of government. We test for the presence of a fundamental behavioral bias, loss aversion, in the way heads of government choose decision rules for international organizations. If loss aversion disappears with experience and high-stakes it should not exhibited in this context. Loss averse leaders choose decision rules that oversupply negative (blocking) power at the expense of positive power (to initiate affirmative action), causing welfare losses through harmful policy persistence and reform deadlocks. We find evidence of significant loss aversion (λ = 4:4) in the Qualified Majority rule in the Treaty of Lisbon, when understood as a Nash bargaining outcome. World leaders may be more loss averse than the populous they represent.

We quantify differences in attitudes to loss from individuals with different demographic, personal and socio-economic characteristics. Our data are based on responses from an online survey of a representative sample of over 4,000 UK residents and allow us to produce the most comprehensive analysis of the heterogeneity of loss aversion measures to date. Using the canonical model proposed by Tversky and Kahneman (1992), we show that responses for the population as a whole differ substantially from those typically provided by students (who form the basis of many existing studies of loss aversion). The average aversion to a loss of £500 relative to a gain of the same amount is 2.41, but loss aversion correlates significantly with characteristics such as gender, age, education, financial knowledge, social class, employment status, management responsibility, income, savings and home ownership. Other related factors include marital status, number of children, ease of savings, rainy day fund, personality type, emotional state, newspaper and political party. However, once we condition on all the profiling characteristics of the respondents, some factors, in particular gender, cease to be significant, suggesting that gender differences in risk and loss attitudes might be due to other factors, such as income differences.