New study reveals why losses impact decisions more than gains.
Gain-loss asymmetries in risky decision-making are often explained by loss aversion, where losses have a stronger impact than gains. However, a study found that a version of prospect theory with a higher weighting for losses but the same value function for gains and losses best explains people's risky choices. This challenges the idea that a kinked value function is necessary and emphasizes the importance of differential probability weighting in gain and loss situations.