DP8904 Aspirations, Well-being, Risk-Aversion and Loss-Aversion

Author(s): Kees Koedijk, Rachel A J Pownall, Meir Statman
Publication Date: March 2012
Keyword(s): behavioural portfolio theory, loss-aversion, prospect theory, risk-taking, subjective well-being
JEL(s): D81, G11
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8904

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.