title: Money, well-being, and loss aversion: does an income loss have a greater effect on well-being than an equivalent income gain?
abstract: Higher income is associated with greater well-being, but do income gains and losses affect well-being differently? Loss aversion, whereby losses loom larger than gains, is typically examined in relation to decisions about anticipated outcomes. Here, using subjective-well-being data from Germany (N = 28,723) and the United Kingdom (N = 20,570), we found that losses in income have a larger effect on well-being than equivalent income gains and that this effect is not explained by diminishing marginal benefits of income to well-being. Our findings show that loss aversion applies to experienced losses, challenging suggestions that loss aversion is only an affective-forecasting error. By failing to account for loss aversion, longitudinal studies of the relationship between income and well-being may have overestimated the positive effect of income on well-being. Moreover, societal well-being might best be served by small and stable income increases, even if such stability impairs long-term income growth.
authors.affiliation: 1Behavioural Science Centre, Stirling Management School, University of Stirling.
authors.forename: Christopher J
authors.initials: CJ
authors.lastname: Boyce
authors.forename: Alex M
authors.initials: AM
authors.lastname: Wood
authors.forename: James
authors.initials: J
authors.lastname: Banks
authors.forename: Andrew E
authors.initials: AE
authors.lastname: Clark
authors.forename: Gordon D A
authors.initials: GD
authors.lastname: Brown
mesh_terms: D000293:Adolescent; D000328:Adult; D000339:Affect; D000368:Aged; D000369:Aged, 80 and over; D005260:Female; D005858:Germany; D006801:Humans; D007182:Income; D008297:Male; D008875:Middle Aged; D010549:Personal Satisfaction; D006113:United Kingdom; D055815:Young Adult
keywords: happiness; income; loss aversion; money; subjective well-being