Loss Aversion in Unemployed People

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Table of Contents

Theory
Hypothesis
Study
Conclusion
Works Cited

Theory

The study of the theory of loss aversion takes place not only in economics but also in psychology. According to Novemsky and Kahneman, researchers “identified loss aversion in many contexts, including areas that are important to marketing managers and consumers” (119). In everyday life, people occasionally have to face the risk of losing financial resources, which gives them a greater emotional impact than potential profit. Such a concept can be applied to the research of the labor market. Unemployment benefits paid to people without jobs in many developed countries can significantly exceed their possible wages. As a consequence, the fear of losing existing status and money stops the natural development of the desire to grow professionally. As Kahneman et al. note, “foregone gains are less painful than perceived losses” (203). Therefore, the number of unemployed in developed countries is large, which is caused by the unwillingness to take risks and receive a job in a potentially less beneficial position in comparison with the situation that a jobless status gives.

Hypothesis

Passive attitude to career growth and job opportunities is due to lose aversion and the desire to keep the status of unemployed for permanent benefits.

Study

In order to prove this hypothesis, it is possible to turn to academic sources where the concept of loss aversion is described. Novemsky and Kahneman view this theory from different points of view, applying it to various market participants – buyers, sellers, manufacturers, and others (120). Accordingly, this model can be applied to those who receive funding from the state, not having a permanent job.

As a research method, a mixed analysis can be conducted. Unemployed residents of any developed country can be interviewed for their opinion on the opportunities and prospects for employment. Based on their answers and assumptions, a statistical report can be compiled where the answers will be divided into groups. Participants will be asked to reflect the degree of their satisfaction with the current status of the unemployed, for example, on a scale from one to five. Also, attendant questions may be asked related to the theory of loss aversion and the relationship of research members to this issue.

Ultimately, the information will be presented in the form of a statistical report. It is supposed that the majority of respondents will confirm fears about the risk of earning less than at the time of the study and will note the stability that a permanent unemployment benefit gives them. According to Gneezy and Potters, established habits of people form their consciousness in relation to many things, including the views of concerning personal growth (632). A mixed type of research is necessary in order to collect data from respondents and to compile a digital mapping of the overall picture on their basis. This analysis will help to determine the attitude of the unemployed to the problem under consideration and confirm the hypothesis of fear caused by the risk of losing a stable income.

Conclusion

The concept of loss aversion can be applied to those unemployed who prefer to receive benefits and avoid seeking jobs because of potentially lower income. A study on this topic can contribute to researching the problem under consideration and help to find ways to review concerns regarding the risk of losses. The use of academic sources may be valuable when finding additional arguments in favor of the concept of loss aversion and its application to the target group.

Works Cited

Gneezy, Uri, and Jan Potters. “An Experiment on Risk Taking and Evaluation Periods.” The Quarterly Journal of Economics, vol. 112, no. 2, 1997, pp. 631-645.

Kahneman, Daniel, et al. “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias.” Journal of Economic Perspectives, vol. 5, no. 1, 1991, pp. 193-206.

Novemsky, Nathan, and Daniel Kahneman. “The Boundaries of Loss Aversion.” Journal of Marketing Research, vol. 42, no. 2, 2005, pp. 119-128.

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Loss Aversion in Unemployed People

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