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Thinking like a trader selectively reduces individuals' loss aversion

  1. Peter Sokol-Hessnera,
  2. Ming Hsub,
  3. Nina G. Curleya,
  4. Mauricio R. Delgadoc,
  5. Colin F. Camererd and
  6. Elizabeth A. Phelpsa,1
  1. aDepartment of Psychology, New York University, 6 Washington Place, New York, NY 10003;
  2. bBeckman Institute for Advanced Science and Technology, Department of Economics, University of Illinois at Urbana-Champaign, 405 North Mathews Avenue, Urbana, IL 61801;
  3. cDepartment of Psychology, Rutgers University, 101 Warren Street, Newark, NJ 07102; and
  4. dDivision of the Humanities and Social Sciences, California Institute of Technology, 1200 East California Boulevard, Pasadena, CA 91125

  1. Edited by Edward E. Smith, Columbia University, New York, NY, and approved February 4, 2009 (received for review July 19, 2008)

Abstract

Research on emotion regulation has focused upon observers' ability to regulate their emotional reaction to stimuli such as affective pictures, but many other aspects of our affective experience are also potentially amenable to intentional cognitive regulation. In the domain of decision-making, recent work has demonstrated a role for emotions in choice, although such work has generally remained agnostic about the specific role of emotion. Combining psychologically-derived cognitive strategies, physiological measurements of arousal, and an economic model of behavior, this study examined changes in choices (specifically, loss aversion) and physiological correlates of behavior as the result of an intentional cognitive regulation strategy. Participants were on average more aroused per dollar to losses relative to gains, as measured with skin conductance response, and the difference in arousal to losses versus gains correlated with behavioral loss aversion across subjects. These results suggest a specific role for arousal responses in loss aversion. Most importantly, the intentional cognitive regulation strategy, which emphasized “perspective-taking,” uniquely reduced both behavioral loss aversion and arousal to losses relative to gains, largely by influencing arousal to losses. Our results confirm previous research demonstrating loss aversion while providing new evidence characterizing individual differences and arousal correlates and illustrating the effectiveness of intentional regulation strategies in reducing loss aversion both behaviorally and physiologically.

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Footnotes

  • 1To whom correspondence should be addressed. E-mail: liz.phelps{at}nyu.edu

  • Author contributions: P.S.-H., M.H., M.R.D., C.F.C., and E.A.P. designed research; P.S.-H. and N.G.C. performed research; M.H. and C.F.C. contributed new reagents/analytic tools; P.S.-H., M.H., and N.G.C. analyzed data; and P.S.-H., C.F.C., and E.A.P. wrote the paper.

  • The authors declare no conflict of interest.

  • This article is a PNAS Direct Submission.

  • This article contains supporting information online at www.pnas.org/cgi/content/full/0806761106/DCSupplemental.

  • ↵* The measure used at the time to define significance in the model was later replaced with the likelihood ratio test (see the SI Text).

  • ↵† For participants whose decisions can be fit perfectly (with no noise parameter), there is a range of parameter values which fit equally well, and no standard procedure for choosing one of these sets of values over the others. Problems with noiseless data are common in such estimations.

  • Freely available online through the PNAS open access option.

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