Losses, gains, and brains: Neuroeconomics can help to answer open questions about loss aversion

Abstract Much is understood about loss aversion (the tendency for losses to have greater hedonic impact than comparable gains), but open questions remain. First, there is debate about whether loss aversion is best understood as the byproduct of a single system within the brain that treats losses and gains asymmetrically or the interaction of separate deliberative and emotional systems. Second, some have questioned whether loss aversion alone is the best account for the endowment effect. Alternative accounts, based on the differential focus induced by buying versus selling, the order in which buyers and sellers consider positive and negative aspects of the good, the extent to which ownership induces liking, and the desire to avoid making a bad deal, have been proposed. Third, it is unclear whether losses are actually experienced more intensely than comparable gains, or whether people simply behave as if they were. Some have argued that loss aversion is nothing more than an affective forecasting error, while others have argued that there are many situations in which losses are actually more impactful than comparable gains. This review synthesizes the insights that behavioral researchers and neuroeconomists have contributed to each debate, and highlights potential avenues for future research.