Avoiding severe environmental consequences: evidence on the role of loss avoidance and risk attitudes

Article Abstract:

Evidence suggests that individuals may not be willing to unilaterally adopt strategies needed to avoid serious environmental consequences. This behavior can be gleaned from two experiments involving subjects who were made to decide whether to internalize the cost of a negative externality to prevent losses. It was found that the individual responses differed according to risk attitudes, with risk-averse subjects reducing their internalization rates and their risk-seeking counterparts increasing theirs. These results suggest that the threat of incurring losses does not result in individuals overcoming the social dilemma.

Environmental economics, Risk perception, Dilemma

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Mental accounting and decision making: the relationship between relative and absolute savings

Article Abstract:

The effect of mental accounting on the relationship between relative and absolute savings is investigated in the context of decision making. Previously, it has been hypothesized that formation of mental accounts influences the rationality of individuals in certain decision making situations. A new experiment shows that any mental accounting effect is negligible as absolute saving to be gained increases beyond some threshold level, indicating that topical accounts do not have much relevance at higher levels of absolute saving.

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Loss aversion in a consumption-savings model

Article Abstract:

Loss aversion in consumers has been modeled using a consumption and savings framework based on Kahneman and Tversky's Prospect Theory. The proposed model suggests a fundamental asymmetry in consumption behavior which is not in agreement with other consumption models. Empirical data from five countries show that individuals exhibit resistance to lowering consumption in response to bad news about future income. In contrast, resistance to increasing consumption is greater in response to good news.

Risk (Economics), Consumption (Economics)

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