Discussion Paper Details

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Title: Aspirations, Well-being, Risk-Aversion and Loss-Aversion

Author(s): Kees Koedijk, Rachel A J Pownall and Meir Statman

Publication Date: March 2012

Keyword(s): behavioural portfolio theory, loss-aversion, prospect theory, risk-taking and subjective well-being

Programme Area(s): Financial Economics

Abstract: Financial well-being is distinct from income. Some people with high incomes suffer low financial well-being, as their incomes fall short of their aspirations. Such people feel propelled to reach their aspirations by taking risk and willing to bear losses. Conversely, some people with low incomes enjoy high financial well-being, as their incomes exceed their aspirations. We find that people whose aspirations exceed their income are less risk-averse and less loss-averse than people whose incomes exceed their aspirations. We also find that competitive and status-seeking people are less risk-averse than people who are less competitive and status-seeking, and that status-seeking people are less loss-averse than people who are not as status-seeking.

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Bibliographic Reference

Koedijk, K, Pownall, R and Statman, M. 2012. 'Aspirations, Well-being, Risk-Aversion and Loss-Aversion'. London, Centre for Economic Policy Research.