Working Paper: CEPR ID: DP9198
Authors: Thomas A. Stephens; Jean-Robert Tyran
Abstract: Loss aversion is one of the most robust findings to have emerged from behavioral economics. Surprisingly little attention, however, has been devoted to nominal loss aversion, the interaction of loss aversion and money illusion. People tend to think of transactions in terms of their nominal (monetary) values. Real losses may therefore loom larger in people?s minds when they lose money than when real losses are hidden by purely nominal gains. Using a survey experiment with a large and heterogeneous sample, we show that evaluations of housing transactions are systematically biased by purely nominal gains versuslosses.
Keywords: bounded rationality; housing transactions; loss aversion; money illusion
JEL Codes: A10; C91; D00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nominal representations (gains vs. losses) (G41) | perceived advantageousness of housing transactions (R21) |
| nominal loss aversion (NLA) (G41) | perceived advantageousness of housing transactions (R21) |
| cognitive ability (G53) | nominal loss aversion (NLA) (G41) |
| cognitive reflection (D91) | nominal loss aversion (NLA) (G41) |
| demographic factors (education and income) (I24) | nominal loss aversion (NLA) (G41) |