Welcome to the Nexus of Ethics, Psychology, Morality, Philosophy and Health Care

Welcome to the nexus of ethics, psychology, morality, technology, health care, and philosophy
Showing posts with label Loss Frame. Show all posts
Showing posts with label Loss Frame. Show all posts

Thursday, April 27, 2023

A dark side of hope: Understanding why investors cling onto losing stocks

Luo, S. X., et al. (2022).
Journal of Behavioral Decision Making.
https://doi.org/10.1002/bdm.2304

Abstract

Investors are often inclined to keep losing stocks too long, despite this being irrational. This phenomenon is part of the disposition effect (“people ride losers too long, and sell winners too soon”). The current research examines the role of hope as a potential explanation of why people ride losers too long. Three correlational studies (1A, 1B, and 2) find that people's trait hope is positively associated with their inclination to keep losing stocks, regardless of their risk-seeking tendency (Study 2). Further, three experimental studies (3, 4, and 5) reveal that people are inclined to hold on to losing (vs. not-losing) stocks because of their hope to break even and not because of their hope to gain. Studies 4 and 5 provide process evidence confirming the role of hope and indicate potential interventions to decrease people's tendency to keep losing stocks by reducing the hope. The findings contribute to the limited empirical literature that has investigated how emotions influence the disposition effect by providing empirical evidence for the role of hope. Moreover, the findings add to the literature of hope by revealing its role in financial decision-making and show a “dark side” of this positive emotion.

General Discussion

Investors are reluctant to sell their losing stocks, which is part of the well-known disposition effect (Shefrin & Statman, 1985). Why would investors do so, especially when it is a suboptimal financial decision? In a series of studies, we found consistent support for the idea that the emotion of hope explains at least partly why people hold on to their losing stocks. Studies 1A and 1B revealed that an increase in people's trait hope (measured by two trait hope scales) increases their inclination to keep losing stocks. Study 2 further confirmed that the trait hope is positively associated with the inclination to keep losing stocks, controlling for the influence of the risk-taking tendency of real-world investors. In Study 3, we developed a simple and effective experimental design to examine whether losing influences hope and people's tendency to keep stocks in the same way. In addition, it differentiated between what people hope for: to break even versus to gain. The results indicate that when one's stocks are losing, compared with when they are not, people experience a stronger hope to break even and an inclination to keep, but not a stronger hope to gain. In addition, Study 3 found that losing (vs. not losing) leads to a stronger inclination to keep stocks.

Moreover, the hope to break even (but not the hope to gain) mediated the effect of losing on the inclination to keep. Study 4 found that reducing people's hope to break even decreases their inclination to keep their losing stocks to the same level as when their stocks did not decrease in price. Study 5 found that people tend to have a lower hope to break even when holding stocks on behalf of others (vs. for themselves) and thus tend to be less likely to keep the losing stocks. Studies 4 and 5 provided process evidence that reducing hope attenuates the inclination to keep, suggesting two possible interventions focusing on the possibility or the desire feature of hope. In a series of studies, we found that people cling to losing stocks because they hope to break even, and reducing this hope decreases their inclination to keep the losing stocks.

Sunday, March 19, 2023

The role of attention in decision-making under risk in gambling disorder: an eye-tracking study

Hoven, M., Hirmas, A., Engelmann, J. B., 
& van Holst, R. (2022, June 30).
https://doi.org/10.31234/osf.io/fxd3m

Abstract

Gambling disorder (GD) is a behavioural addiction characterized by impairments in decision-making, favouring risk- and reward-prone choices. One explanatory factor for this behaviour is a deviation in attentional processes, as increasing evidence indicates that GD patients show an attentional bias toward gambling stimuli. However, previous attentional studies have not directly investigated attention during risky decision-making. 25 patients with GD and 27 healthy matched controls (HC) completed a mixed gambles task combined with eye-tracking to investigate attentional biases for potential gains versus losses during decision-making under risk. Results indicate that compared to HC, GD patients gambled more and were less loss averse. GD patients did not show a direct attentional bias towards gains (or relative to losses). Using a recent (neuro)economics model that considers average attention and trial-wise deviations in average attention, we conducted fine-grained exploratory analyses of the attentional data. Results indicate that the average attention in GD patients moderated the effect of gain value on gambling choices, whereas this was not the case for HC. GD patients with high average attention for gains started gambling at less high gain values. A similar trend-level effect was found for losses, where GD patients with high average attention for losses stopped gambling with lower loss values. This study gives more insight into how attentional processes in GD play a role in gambling behaviour, which could have implications for the development of future treatments focusing on attentional training or for the development of interventions that increase the salience of losses.

From the Discussion section

We extend the current literature by investigating the role of attention in risky decision-making using eye-tracking, which has been underexplored in GD thus far. Consistent with previous studies in HCs, subjects’ overall relative attention toward gains decreased in favor of attention toward losses when  loss  values  increased.  We  did not find group differences in attention to either  gains or losses, suggesting no direct attentional biases in GD. However, while HCs increased their attention to gains with higher gain values, patients with GD did not. Moreover, while patients with GD displayed lower loss aversion, they did not show less attention to losses, rather, in both groups, increased trial-by-trial attention to losses resulted in less gambling.

The question arises whether attention modulates the effect of gains and losses on choice behavior differently in GD relative to controls. Our exploratory analyses that differentiated between two different channels of attention indeed indicated that the effect of gain value on gambling choices was modulated by the amount of average attention on gains in GD only. In other words, patients with GD who focused more on gains exhibited a greater gambling propensity at relatively low gain values. Notably, the strength of the effect of gain value on choice only significantly differed at average and high levels of attention to gains between groups, while patients with GD and HCs with relatively low levels of average attention to gains did not differ. Moreover, patients with GD who had relatively more average attention to losses showed a reduction in gambling propensity at relatively lower loss values, but note that this was at trend level.  Since  average  attention  relates  to  goal-directed or top-down attention, this measure likely reflects one’s preferences and beliefs.  Hence,  the  current  results suggest  that  gambling  choices  in  patients  with GD, relative to HCs are more  influenced by their preferences for gains. Future studies are needed to verify if and how top-down attentional processes affect decision-making in GD.


Editor's note: Apparently, GD focusing primarily on gains continue to gamble.  GD and HC who focus on losses are more likely to stop.  Therefore, psychologists treating people with impulse control difficulties may want to help patient's focus on potential losses/harm, as opposed to imagined gains.

Sunday, March 30, 2014

Three Myths of Behavior Change

Published on Mar 20, 2013

Jeni Cross is a sociology professor at Colorado State University. She has spoken about community development and sustainability to audiences across the country, from business leaders and government officials to community activists. As a professor and consultant she has helped dozens of schools and government agencies implement and evaluate successful programs to improve community well-being. In this talk, she discusses her work around changing behaviors.


Friday, May 4, 2012

Bounded Ethicality: The Perils of Loss Framing

By Mary C. Kern and Dolly Chugh
Psychological Science
(2009) Volume 20, Number 3, pp 378-384

Abstract

Ethical decision making is vulnerable to the forces of automaticity. People behave differently in the face of a potential loss versus a potential gain, even when the two situations are transparently identical. Across three experiments, decision makers engaged in more unethical behavior if a decision was presented in a loss frame than if the decision was presented in a gain frame. In Experiment 1, participants in the loss-frame condition were more likely to favor gathering ‘‘insider information’’ than were participants in the gain-frame condition. In Experiment 2, negotiators in the loss-frame condition lied more than negotiators in the gain-frame condition. In Experiment 3, the tendency to be less ethical in the loss-frame condition occurred under time pressure and was eliminated through the removal of time pressure.

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Framing

In the studies reported here, we explored the effect of automaticity on the cognitions and behaviors of decision makers in the moment of ethical choice. What are the roles of the decision maker’s cognitive framing of the situation and the decision maker’s available cognitive resources?  We turned to framing effects (Tversky & Kahneman, 1981) as the foundation of our inquiry.  The transformative effects of framing are well established (for reviews, see Camerer, 2000; Kuhberger, 1998). A framing effect occurs when transparently and objectively identical situations generate dramatically different decisions depending on whether the situations are presented, or perceived, as potential losses or gains (Tversky & Kahneman, 1981). Framing effects are integral to prospect theory (Kahneman & Tversky, 1979; Tversky & Kahneman, 1981), a model of choice that describes an ‘‘S-shaped value function’’ to illustrate the differences in how gains and losses, relative to a reference point, are valued. A critical feature of this curve is that it has a steeper slope in the loss domain than in the gain domain. As a result, people are loss averse; that is, they are willing to go to greater lengths to avoid a loss than to obtain a gain of a similar size (Kahneman, Knetsch, & Thaler, 1990; Tversky & Kahneman, 1991).

We considered the implications of framing effects for ethics.  When making decisions, individuals often choose from an array of possible responses, with some choices being more, or less, ethical than others. Given the previous work on framing effects, we reasoned that individuals who perceive a potential outcome as a loss will go to greater lengths, and engage in more unethical behavior, to avert that loss than will individuals who perceive a similarly sized gain. This logic formed the initial basis for the present research.