Losing my loss aversion: The effects of current and past environment on the relative sensitivity to losses and gains

It is often assumed that most people are loss averse, placing more weight on losses than commensurate gains; however, some research identifies variability in loss sensitivity that reflects features of the environment. We examined this plasticity in loss sensitivity by manipulating the size and distribution of possible outcomes in a set of mixed gambles, and assessing individual stability in loss sensitivity. In each of two sessions, participants made accept-reject decisions for 64 mixed-outcome gambles. Participants were randomly assigned to conditions defined by the relative range of losses and gains (wider range of losses vs. wider range of gains), and the currency-units at stake ('pennies' vs. 'pounds'). Participants showed modest but non-trivial consistency in their sensitivity to losses; though loss sensitivity also varied substantially with our manipulations. When possible gains had greater range than possible losses, most participants were loss averse; however, when possible losses had the greater range, reverse loss aversion was the norm (i.e., more weight on gains than losses). This is consistent with decision-by-sampling theory, whereby an outcome's rank within a consideration-set determines its value, but can also be explained by the gamble's expected-value rank within the decision-set, or by adapting aspirations to the decision-environment. Loss aversion was also reduced in the second session of decisions when the stakes had been higher in the previous session. This illustrates the influence of prior context on current sensitivity to losses, and suggests a role for idiosyncratic experiences in the development of individual differences in loss sensitivity.