Money, well-being, and loss aversion: does an income loss have a greater effect on well-being than an equivalent income gain?
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.
['Boyce|Christopher J|CJ|', 'Wood|Alex M|AM|', 'Banks|James|J|', 'Clark|Andrew E|AE|', 'Brown|Gordon D A|GD|']
D000293:Adolescent D000328:Adult D000339:Affect D000368:Aged D000369:Aged, 80 and over D005260:Female D005858:Germany D006801:Humans D007182:Income D008297:Male D008875:Middle Aged D010549:Personal Satisfaction D006113:United Kingdom D055815:Young Adult
money loss aversion income happiness subjective well-being