Are the disabled less loss averse?

by on January 7, 2016 at 1:44 am in Data Source, Economics, Medicine | Permalink

Arbel, Ben-Shahar, and Gabriel have a newly published paper on this topic, here is the abstract:

Research findings show that disabled persons often develop physical and psychological mechanisms to compensate for disabilities. Coping mechanisms may not be limited to the psychophysiological domain and may extend to cognitive bias and loss aversion. In this study, we apply unique microdata from a natural policy experiment to assess the role of loss aversion in home purchase among nondisabled and disabled households. Results of survival analysis indicate that the physically disabled are substantially less loss averse in home purchase. Furthermore, loss aversion varies with other population characteristics and attenuates with degree of disability. Findings provide new evidence of diminished cognitive bias and more rational economic decision-making among the physically disabled.

There are alternative versions of the paper here.

For the pointer I thank the excellent Kevin Lewis.

1 Pacemaker January 7, 2016 at 5:15 am

An earlier ungated version of the paper was more circumspect in attributing the difference in cognitive bias to the development of coping mechanisms, leaving the point in the footnote:

I haven’t read the published version, so I hope it acknowledges the possibility of reverse causality, that is lower loss aversion encourages risky behaviors that could lead to physical disability. Otherwise, the change in emphasis is misleading.

2 Jon January 7, 2016 at 8:39 am

Not having read the full paper, these results are also consistent with a prospect theory explanation (if some of this disabled population has a healthier state for a reference point). Salient losses in other contexts lead to risk-seeking behavior, why not losses of health?

3 Axa January 7, 2016 at 10:51 am

I don’t want to spoil the smugness party but smoking causes about the same amount of disabilities than accidents (unintentional injuries + transport injuries). Both of them are less than musculoskeletal disorders. So, in which way the appetite for risk causes a musculoskeletal disorder? Accidents that can be attributed to risky behavior are far from the top of causes of disability.

4 The Original D January 7, 2016 at 2:40 pm

Smoking’s risky mmkay?

5 Kevin January 7, 2016 at 10:58 am

Very interesting (if true). Understanding how different demographic groups approach risk (and how this plays out in other outcomes such as wealth, income, mating, etc.) seems like a promising area of study…

6 Yancey Ward January 7, 2016 at 11:07 am

And how long will it take before someone proposes cutting off left feet to juice economic growth?

7 Michelle B January 7, 2016 at 1:08 pm

What about cognitively disabled people? Do they too exhibit this tendency?

8 Marie January 9, 2016 at 1:02 am

Loss aversion may not match up with risk aversion as a one to one.

I know folks who have had serious illnesses or injuries, and they aren’t necessarily going to be drastically more likely to take a risk. What I do think is accurate (anecdotally) is that when they take a risk and get a poor consequence, they are much more likely to be able to see that consequence in perspective. While one person may shoot for a promotion and be really devastated when he doesn’t get the position, a person who has (for example) just hit her 5 year survivor mark for cancer is more likely to see it as not so big a deal, in the grand scheme of things.

It’s long been recognized that those who have lived through difficulty tend to not sweat the small stuff.

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