When Losses Loom Even Larger: the Moderating Role of Relationship Norms

Prospect theory states that people interpret outcomes not as end-states but as gains and losses relative to a reference point. Removing a good from the endowment reflects a loss while adding the same good (to an endowment without it) reflects a gain. Furthermore, the value function for losses is steeper than the value function for gains, v (x) <-v (x), where v is the value of x. As such, losses loom larger than gains resulting in people generally being averse to losses (Kahneman and Tversky 1979). Thaler (1980) termed this increased value of a good when it becomes part of the individual’s endowment the endowment effect. Recent research has identified factors that moderate the strength of the loss aversion and endowment effect, for example, source dependence (Loewenstein and Issacharoff 1994), transaction demand (Mandel 2002), and symbolic value of products (McGraw, Tetlock, and Kristel 2003). The present research proposes one other potential moderator of loss aversion: the type of relationship that consumers form with the product.

Citation:

Pankaj Aggarwal and Meng Zhang (2006) ,"When Losses Loom Even Larger: the Moderating Role of Relationship Norms", in LA - Latin American Advances in Consumer Research Volume 1, eds. Silvia Gonzalez and David Luna, Duluth, MN : Association for Consumer Research, Pages: 29-30.