STUDIES OF LOSS AVERSION AND PERCEIVED NECESSITY

An explanation of the loss-aversion function of prospect theory that r elates the theory to a distinction between positive-based and negative -based incentive value was investigated, We predicted that betting dec isions would show loss aversion to the extent that they involved neces sary goals-goals that were more likely to be negatively based (associa ted with a threat of negative alternatives). Therefore, conditions tha t increased perceived goal necessity should have increased the magnitu de of the loss-aversion effect. The results from 194 subjects in two s tudies supported this prediction. Factors related to perceived goal ne cessity (e.g., telic dominance, imagined proportion of financial asset s to be gambled, proportion of assets in a necessities account, actual proportion of income spent on necessities) were related to reluctance to take hypothetical bets. Relationships seemed to be contingent on b et characteristics (amount and win-loss ratio), A third study suggeste d that these results reflected loss aversion rather than risk aversion .