TY - JOUR
T1 - Money, well-being, and loss aversion
T2 - does an income loss have a greater effect on well-being than an equivalent income gain?
AU - Boyce, Christopher J.
AU - Wood, Alex M.
AU - Banks, James
AU - Clark, Andrew E.
AU - Brown, Gordon D.A.
PY - 2013/10/14
Y1 - 2013/10/14
N2 - 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.
AB - 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.
KW - happiness
KW - income
KW - loss aversion
KW - money
KW - subjective well-being
UR - http://www.scopus.com/inward/record.url?scp=84889262869&partnerID=8YFLogxK
U2 - 10.1177/0956797613496436
DO - 10.1177/0956797613496436
M3 - Article
C2 - 24126382
AN - SCOPUS:84889262869
SN - 0956-7976
VL - 24
SP - 2557
EP - 2562
JO - Psychological Science
JF - Psychological Science
IS - 12
ER -