Do You Value What You Have More After Losing It? Extending the Break-Even Effect
3 June 2022 @ 3:00 pm - 4:30 pm
Online Research Seminar
3:00 pm, Friday, 3 June 2022
An explanation of the break-even effect (Thaler & Johnson, 1990) is that gains cancelling prior losses receive disproportionate higher values. This explanation is proposed and tested for monetary losses as well as lost property. In Experiment 1 (n=107) investigating choices of risky and sure hypothetical monetary outcomes after a prior loss, the results did not show that risk seeking increased when the risky gain cancelled the prior loss. After a reminder of the opportunity cost (what the lost money could have bought), an increase was observed of the frequency of choices of a sure gain cancelling the prior loss. A scenario test in Experiment 2 demonstrated the break-even effect in that participants (n=128) preferred to regain a lost laptop computer instead of having it replaced with a new one at no cost. The results further showed that the break-even effect decreased with the cost and increased with the probability of regaining the laptop as well as the duration of having owned it. We argue that the break-even effect reflects a psychological phenomenon that may only be observed for money under specific circumstances but is generally observed for positively valued lost property.
About the speaker
Tommy Gärling graduated in 1972 from Stockholm University with a PhD in Psychology. After positions as Assistant Professor of Applied Psychology and Associate Professor of Psychology at Umeå University, Research Professor of Psychology and Planning at the Swedish Research Council of Humanities and Social Sciences and Director of the Transportation Research Unit at Umeå University, he was in 1992 appointed as Professor of Psychology at University of Gothenburg, Göteborg. He held this position until 2008 when he became Emeritus Professor. From 2009 to 2020 Tommy Gärling worked as senior researcher in the Centre of Finance in the School of Business, Economics and Law at University of Gothenburg.
Tommy Gärling has conducted research in five main areas, judgment and decision making (basic research on different topics related to evaluations and emotions), environmental psychology (spatial cognition; childhood accidents; residential choice; restorative effects of natural environments; pro-environmental values, attitudes and behaviors), econonomic psychology and behavioral economics/finance (money perception and perceived inflation; sustainable investments and values; herding in stock markets; effects of bonus systems on investors´ short-sightedness; consumers’ trust in and satisfaction with financial institutions; young adults´ borrowing), travel behavior (computational process models of interrelated activity/travel choice; evaluation of transport policies to reduce car use; attractiveness of public transport), and consumer behavior, marketing and retailing (replacement purchases of cars; attractiveness and accessibility of stores for grocery shopping).