G&R are happy to admit that in many, many cases, people behave in loss-averse ways, including most of the classic examples given by Kahneman and Tversky. They just think that this is because of other cognitive biases, not a specific cognitive bias called “loss aversion”. They especially emphasize Status Quo Bias and the Endowment Effect.
Interesting tangent: if we start with the kind of inexploitability arguments typically used to justify utility functions, and modify them to account for agents having internal state, then we get subagents. Rather than inexploitable decision-makers always being equivalent to utility-maximizers, we find that inexploitable decision-makers are equivalent to committees of utility-maximizers where each “committee member” has a veto. (In particular, this model handles markets, which are the ur-example of inexploitability yet turn out not to be equivalent to a single utility maximizer.)
What sort of “biases” would someone expecting a utility-maximizer would find when studying such a subagent-based decision-maker? In other words, how does a subagent-based decision-maker’s decisions differ from a utility-maximizer’s decisions? Mainly, there are cases where the subagent will choose A over B if it already has A, and B over A if it already has B. (Interpretation: there are two subagents, one of which wants A, and one of which wants B. If we already have A, then the A-preferring subagent will veto any offer to switch; if we already have B, then the B-preferring subagent will veto any offer to switch.) In other words: there’s a tendency toward inaction, and toward assigning “more value” to whatever the agent currently has. Status Quo Bias, and Endowment Effect.
And yet, neither of these supposed “biases” is actually exploitable. Such decision-makers can’t be money-pumped.
Interesting tangent: if we start with the kind of inexploitability arguments typically used to justify utility functions, and modify them to account for agents having internal state, then we get subagents. Rather than inexploitable decision-makers always being equivalent to utility-maximizers, we find that inexploitable decision-makers are equivalent to committees of utility-maximizers where each “committee member” has a veto. (In particular, this model handles markets, which are the ur-example of inexploitability yet turn out not to be equivalent to a single utility maximizer.)
What sort of “biases” would someone expecting a utility-maximizer would find when studying such a subagent-based decision-maker? In other words, how does a subagent-based decision-maker’s decisions differ from a utility-maximizer’s decisions? Mainly, there are cases where the subagent will choose A over B if it already has A, and B over A if it already has B. (Interpretation: there are two subagents, one of which wants A, and one of which wants B. If we already have A, then the A-preferring subagent will veto any offer to switch; if we already have B, then the B-preferring subagent will veto any offer to switch.) In other words: there’s a tendency toward inaction, and toward assigning “more value” to whatever the agent currently has. Status Quo Bias, and Endowment Effect.
And yet, neither of these supposed “biases” is actually exploitable. Such decision-makers can’t be money-pumped.