Research on Loss Aversion and Its Formation in Prospect Theory

One of the most popular concepts in the social sciences is loss aversion, the idea that losses loom larger than rewards [1]. This paper begins with an overview of previous research on loss aversion and demonstrates the importance of the impact of loss aversion on social and individual decision-making. At the same time, this paper also lists three applications of loss aversion and their related research in psychology. Finally, the paper makes recommendations for future research on loss aversion. Few theoretical and mostly experimental studies have been done in the past on loss aversion. The endowment effect, the winner's curse, and consumer choice behaviour are the three specific areas of applied research that are covered in this paper. Future research on loss aversion is advised by this paper to consider the unique situational circumstances when examining people's exposure to losses and gains, as well as the psychological drivers of loss aversion formation.