Is loss aversion magnitude dependent?

Researchers: Sumitava Mukherjee, Narayanan Srinivasan, V.S.C Pammi & Narayanan Srinivasan

Many of us have bought or seen somebody buying tomatoes. The first interesting question in the customer is the current price, with reference to the known or remembered price from the past purchase. Prospect Theory’s value function explained this relative valuation through the principle of loss aversion which says, people weight losses more than gains emotionally. So, a gain of 10 is psychologically less than a loss of 10.

Interestingly, a large number of studies have looked at big magnitudes. But, we were concerned about the average customer taking a walk in the evening looking to purchase tomatoes : We were thinking about small amounts.


Psychological valuation of gold in India

In India, gold is entwined emotionally, culturally and socially. As one of the largest consumers in the world, Indians consistently purchase gold (75% is in the form of jewellery) mainly during festivities. Such purchases are sometimes preceded by periods of deliberation and discussion while at other times, the purchases are unplanned. Due to a dynamic nature of the gold market, prices change everyday and are often displayed on popular media sources. There has been considerable changes in price within 5 years and sometimes even within a year. It was not clear whether and to what extent price plays a role in gold purchases, although it has often been tacitly assumed that it does.