The Impact of Stake Size on Loss Aversion: An Empirical Study in Bengaluru, India

International Journal of Economics and Management Studies

© 2024 by SSRG - IJEMS Journal

Volume 11 Issue 8

Year of Publication : 2024

Authors : Shraavyaa S Thalur

10.14445/23939125/IJEMS-V11I8P110

How to Cite?

Shraavyaa S Thalur, "The Impact of Stake Size on Loss Aversion: An Empirical Study in Bengaluru, India," SSRG International Journal of Economics and Management Studies, vol. 11,  no. 8, pp. 77-86, 2024. Crossref, https://doi.org/10.14445/23939125/IJEMS-V11I8P110

Abstract:

The loss aversion bias was first coined in the paper on Prospect Theory by renowned behavioral economists Daniel Kahneman and Amos Tversky [1]. Since then, understanding this bias, as well as its causes and factors influencing it, has been a topic of interest within the same field. This study aims to add to this existing literature with regard to loss aversion in gambling, risky choice situations, with regard to an increased wager amount at stake, and differences of the bias in terms of demographic variables. This study aims to observe the effects of this bias within an Indian socio-cultural context, based primarily in Bengaluru, Karnataka, while addressing differences in findings of past literature with respect to the relationship between the bias and specific demographic factors. To address this aim, this study employed a quantitative research methodology to measure 153 participants’ loss aversion in making decisions for risky coin-toss scenarios. The study defined a measure to calculate loss aversion with regard to participants accepting or rejecting a wager coin-toss scenario. Through statistical analysis of the sample’s measured loss aversion, it was found that loss aversion increases with an increase in the amount at stake and that loss aversion increases with an increase in an individual’s household income. Further, loss aversion is found to be significantly more for older individuals only when the amount at stake is high. This study and its findings add to the existing inconsistent literature on the understanding of the influence of demographic variables on loss aversion, showing that loss aversion may not be as affected by inherent traits as suggested before.

Keywords:

Loss aversion, Risk aversion, Coin-toss test, Prospect theory, Behavioural economics.

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