Let’s say you come across a wager that offers a 50/50 chance of winning or losing $50. If you placed the wager and won $50, how satisfying would it be? What would it be like to lose fifty dollars? Kahneman and Tversky (1979) found that losing $50 hurts more than winning $50. This indicates that people are more likely to seek out gains than to seek out losses. If nothing else changed, but you learned it was an investment, how would you feel about winning or losing $50? How do people respond to gains and losses in gambling tasks compared to investment tasks? In this research, we looked at loss aversion in gambling versus investment. We kept the decision tasks the same. This topic is often talked about in places like online poker rooms (e.g., https://20bet.com/live-casino/poker).
It’s unclear if gambling and investment choices differ when the tasks are the same. This study looked at how people’s loss aversion shifts based on whether they see a money choice as gambling or investing. The only change was the wording used for each task.
Yang, Vosgerau, and Loewenstein (2013) found that when people call a risky option a “lottery ticket,” they hesitate to pay for it. Yet, if it has a different name, they are more willing to spend. Yet, it didn’t change their willingness to accept (WTA) it when framed as “gift certificates.” It’s important to explore if framing a choice as a gamble or an investment affects loss aversion.
Take lotteries as an example. Statman (2002) said that playing the lottery is a negative-sum activity. This means that players typically lose more than they gain.
Gambling tends to offer a lower chance of positive returns than investing. This pattern shows that gambling has a much smaller chance of making money than traditional investment options.
Many people think others enjoy richer social lives. This belief arises because those who are social tend to be more visible than those who are not (Deri, Davidai, & Gilovich, 2017).
People’s views on gambling and investing can differ. These views are often influenced by the availability heuristic. This means they tend to rely on information that comes to mind quickly. People know more about losing money from gambling and making money from investing. It’s harder for them to find information on gaining money from gambling or losing it from investing.
Kahneman and Tversky (1979) showed that people tend to feel losses more than equal gains. This is known as loss aversion. For example, losing $100 would make you sadder than gaining $100 would make you happy.
Studies show that where people pay attention impacts how they see risk (Bar-Haim et al., 2007). The same logic can be applied to gambling and investment.
The accumulation decision-making model suggests that the weight of an attribute depends on how much attention it gets. More attention leads to a higher weight for that attribute (Busemeyer and Townsend, 1993; Usher and McClelland, 2001). How much we pay attention to losses can affect our decisions later on.
Laypeople see more risk in gambling than in investing. They focus more on potential losses when gambling. So, we think that loss aversion is stronger in gambling than in investing.
This research examined people’s views on gambling and investment. It also studied how these views impact loss aversion in each area. Study 1 analyzed if people think gambling results in more losses and fewer wins than investments do. The next five studies examined whether these lay theories led to greater loss aversion in gambling than in investing. In Study 2, we looked at loss aversion by figuring out how much gain participants would take for a set amount of loss. In Study 3, we looked at loss aversion. The assessment was based on the amount of loss participants were willing to accept for a given gain. In Study 4, we looked at whether loss aversion changed between lotteries and the stock market. This helped us rule out the confusion caused by behavioral norms. In Study 5, we examined loss aversion using an affective intensity scale. This choice helped us exclude other factors. These include risk aversion, status quo bias, and monetary requests seen in Studies 2 to 4. In Study 6, participants made real decisions in an incentivized setting.