Loss helps people make more rational decisions

Abstract

Biases often arise when people make choices and evaluate outcomes, leading them astray from optimal decision-making based on economic theories. Although researchers have proposed cognitive and motivational interventions to de-bias people, few interventions can address multiple biases simultaneously. This research aims to achieve this goal by examining people’s tendencies to exhibit or avoid decision-making biases after they experience losses or gains. I argue that people experiencing losses tend to avoid certain decision-making biases as they become more cautious or process information more deliberately. Three experiments tested the effects of experienced losses on the three most prevalent biases when people make and reflect on decisions (sunk cost bias, default bias, and outcome bias). The results indicated that a loss manipulation significantly reduced the three biases, with effect sizes approximately halving compared to a gain manipulation. These findings are consistent with the idea that losses promote more analytical thinking that helps people make more rational decisions.