"Risk aversion" VS "Loss aversion"

Reading "Superfreakonomics" and end of year market summaries it struck me how the term "risk aversion" is really so inferior to what we really mean - "loss aversion". We are not afraid of risk, we are afraid of losing and this is repeatedly confirmed by studies of behavioral economics and other sciences as well as by simple observation.

So we should just stop using "risk aversion".

The interesting part of all these studies is where they cross the divide into how we are motivated to inflict pain (or economic loss) onto others even when that is not in our own best economic interest.

Got to look more into that and understand my own loss aversion better. (Maybe inflicting pain on others as a motivation is a useful "antidote"?) There is a New Year's resolution No.1 !

Comments

Anonymous said…
I am doing research for my university thesis, thanks for your brilliant points, now I am acting on a sudden impulse.

- Laura
October 05, 2010 1:51 AM
Unknown said…
But if you choose 15$ for sure over 30$-0$ gamble then I think it is risk aversion and not loss aversion. I think here risk is modulating value.
October 17, 2012 10:00 AM
Miljenko said…
iIt turns out monkeys are loss averse too - "The Evolution of Our Preferences: Evidence from Capuchin Monkey Trading Behavior" Journal of Political Economy 114 (2006) 517-37.
April 26, 2013 11:42 AM
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