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Journal Article

Money, well-being, and loss aversion: does an income loss have a greater effect on well-being than an equivalent income gain?

Authors

Publication date

Dec 2013

Summary


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.

Published in

Psychological Science

Volume and page numbers

24 , 2557 -2562

DOI

http://dx.doi.org/10.1177/0956797613496436

ISSN

16

Subjects

Income Dynamics and Well Being

Links

http://serlib0.essex.ac.uk/record=b1590470~S5

Notes

Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*

#521967


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