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Money, Well-Being, and Loss Aversion: Does an Income Loss Have a Greater Effect on Well-Being Than an Equivalent Income Gain?

Abstract : Higher income is associated with greater well-being, but do income gains and losses affect well-being differently? Loss aversion, whereby losses loom larger than gains, is typically examined in relation to decisions about anticipated outcomes. Here, using subjective-well-being data from Germany (N = 28,723) and the United Kingdom (N = 20,570), we found that losses in income have a larger effect on well-being than equivalent income gains and that this effect is not explained by diminishing marginal benefits of income to well-being. Our findings show that loss aversion applies to experienced losses, challenging suggestions that loss aversion is only an affective-forecasting error. By failing to account for loss aversion, longitudinal studies of the relationship between income and well-being may have overestimated the positive effect of income on well-being. Moreover, societal well-being might best be served by small and stable income increases, even if such stability impairs long-term income growth.
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https://halshs.archives-ouvertes.fr/halshs-00941907
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Submitted on : Tuesday, February 4, 2014 - 2:34:25 PM
Last modification on : Friday, April 29, 2022 - 10:12:58 AM

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Christopher J. Boyce, Alex M. Wood, James Banks, Andrew E. Clark, Gordon D. A. Brown. Money, Well-Being, and Loss Aversion: Does an Income Loss Have a Greater Effect on Well-Being Than an Equivalent Income Gain?. Psychological Science, Association for Psychological Science, 2013, 24 (12), pp.2557-2562. ⟨10.1177/0956797613496436⟩. ⟨halshs-00941907⟩

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