Does exposure to losses intensify loss aversion? Evidence from a competitive industry

Loss aversion is one of the most robust findings in behavioral economics, with individuals typically weighing losses about twice as heavily as equivalent gains, and some even weighing losses many times more than equivalent gains. What drives these differences across individuals? Could it be that frequent exposure to the prospect of loss intensifies this bias? We examine this question in a competitive industry where decision-makers routinely face the prospect of losses that could threaten business survival. Using two distinct approaches, we find evidence of strong to extreme loss aversion. First, via thousands of real-time labor demand decisions from a retail chain and a discrete choice stopping model, we find a loss aversion coefficient of, rising to on slow days with smaller management teams, while disappearing on busy days. Second, through structured interviews with business owners and managers, we document a mean loss aversion coefficient of and median of, with 74% having coefficients above 1 and 30% above 3. Importantly, loss aversion increases with market experience.