Loss Aversion’s Influence and Application in Marketing and

Financial Investment

Shuling Liu

School of economics, Minzu University of China, Beijing, 100000, China

Keywords: Loss Aversion, Marketing, Financial Investment.

Abstract: Loss aversion is a behavioral economics bias which runs through human’s behavior. With the development

of research about behavioral economics, more and more people get to know loss aversion. Loss aversion has

many applications in different areas, but most of times, the effect it makes will be different with what people

believe. This paper will be based on the existing paper to summarize and do further research, analyze the

application and the impact of loss aversion in the field of marketing and financial investment. Research finds

that loss aversion will affects consumer’s willingness to consume and causes equity premium. At the same

time, different groups have different levels of lose averse. As a result, facing different populations, different

kinds of strategies need to be came up with. The outcome of this paper will be able to improve the

understanding people have about loss aversion and be good for marketing and financial investment.

1 INTRODUCTION

loss aversion is really normal in people’s lives,

making different in almost every area. With the

development of behavior economics, loss aversion

steps into more people’s vision, people realize that

loss aversion exists in every corner of life. As big as

buying a house or a car, as small as buying a handful

of vegetables, loss aversion exists. loss aversion was

first came up and explained by Tversky and

Kahneman, they let this concept “loss aversion”

get into people’s lives; After that, Thaler、Sunstein

and other researchers continued to study loss aversion

and explored the application and influence of loss

aversion. What’s more, they also tried to use loss

aversion to nudge people into action. How loss

aversion affects people’s choice in marketing? How

loss aversion shine in financial investment and

causing equity premium? This paper will examine the

application and influence of loss aversion in more

detailed way. On this basis, this paper will come up

with some advice about how can people in these two

fields make use of loss aversion.

2 INTRODUCTION OF LOSS

AV E R S I O N

loss aversion is a response in which people in a role

value loss more than an equivalent amount of gain.

When people loss, their intuitive systems find this

hard to accept, as a result, they will develop feelings

of disgust. In other words, the pain of losing

something that belongs to individuals is much deeper

than the joy of gaining the same thing. Research

shows that losing something makes individuals twice

as sad as getting the same thing makes individuals

happy (Thaler et al., 2009).

Loss aversion was first came out by Amos

Tversky and Daniel Kahneman, it can be explain by

famous mug experiment. Give student a mug which

worth 5 $, let another student who does not have mug

and the student who has mug to quote on mug, the

outcome is that the quoted price from the student who

already has a mug tend to be higher than the student

who does not. This is because that for those students

who had mugs already, they would see the sale of

mug as a loss of their own , while for those who did

not have the mugs buying the mug would be see as a

gain. Because of the endowment effect and loss

aversion, the utility to losing one’s own thing is much

greater than the utility of gaining the same thing, so

the quoted prices are different, coming out with loss

aversion (Liao & Li, 2018).

Liu, S.

Loss Aversion’s Inﬂuence and Application in Marketing and Financial Investment.

DOI: 10.5220/0014148900004942

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 2nd International Conference on Applied Psychology and Marketing Management (APMM 2025), pages 615-620

ISBN: 978-989-758-791-7

615

3 RELATION STATEMENT

3.1 Loss Aversion’s Application and

Effect in Marketing

In fact, loss aversion has many applications and

influence in many areas. In the field of marketing,

Businesses and merchants have long recognized the

nature of consumer’s loss aversion. In addition, many

marketing strategies have been developed for the loss

business characteristics of consumers, to increase the

market share of the enterprise to expand the profit

space.

First, loss aversion makes consumers more

interested in new products than remanufactured

products. When it comes to a new product, buying

nothing triggers a loss aversion among loss-averse

consumers, which does not happen in the

remanufactured goods market. In contrast, loss

aversion is conducive to new products to occupy more

and larger market shares, promote the development of

new products, and is conducive to product upgrading.

Second, there is a diminishing sensitivity trend in

the margin of loss aversion. For example, when a

person only has 100 $, losing or gaining 10$ will have

a greater impact on individuals’s emotion and

behavior. This is because individuals has already

taken 100 as his reference point in his subconscious,

and he or she will compare it with 100 when there is

any change in the amount in the future. As a result, his

mood swings and behavior are influenced by this

reference point. The number 10 is very close to the

reference point of 100, so the mood swing caused by

$10 will be larger. However, if individuals has $10,

000 and the reference point has changed from 100 to

$10, 000, the difference between $10 and $10, 000 is

much greater than $10 and $100, so the mood swings

caused by losing or gaining $10 will be greatly

reduced, and the impact on his behavior will also be

reduced. Therefore, consumers will be very sensitive

to price fluctuations when buying low-priced

products, and they will be more susceptible to loss

aversion. When consumers consume high-priced

goods, they are less sensitive to fluctuations in the

price difference of the same proportion. Therefore,

merchants rarely use small-denomination coupons as

a discount for the purchase of luxury goods (Liao &

Li, 2018).

Loss-averse consumers will react negatively to

price fluctuations and reduce purchase rates, which in

turn leads to fewer profit opportunities for merchants.

In other words, when prices fluctuate with the

fluctuation of costs, more loss-averse consumers will

give up consumption, so that it is difficult for

merchants to sell their goods. In addition, since most

consumers are loss-averse, merchants will pay

attention to this trait to maintain

consumers’consumption of the brand by maintaining

a relatively stable price, resulting in price stickiness –

even when the cost has changed. In other words, in

most cases, even though costs are always fluctuating,

merchants will choose to keep prices the same for a

larger consumer base to avoid consumer loss aversion

and obtain more profits (Kim & Lee, 2014).

Additionally, merchants will use consumers’loss

aversion traits to promote consumer consumption to

increase profits, so that consumers feel that not buying

the corresponding goods will cause huge losses, this

will promoting the purchase of loss-averse consumers.

For example, vehicle insurance sellers will hype up the

consequences of car accidents to amplify

consumers’emotions about the possible losses caused

by car accidents, and enhance consumers’aversion to

property losses caused by accidents such as car

accidents, and at the same time, merchants will also

promote the protection of their insurance for property

after car accidents and other accidents, in order to

achieve their purpose of selling more vehicle

insurance. For another example, the merchant will

mark an original price on the label of the product, and

give a much lower current price after crossing out the

original price, this can stimulate consumers’desire to

buy the goods most of times; or use eye-catching fonts

to mark price reduction notices such as "daily low

price" on the price tag to trigger the loss aversion

mechanism of consumers; Alternatively, the merchant

may choose to be dissatisfied with the full refund to

encourage the consumer to use or own the product for

a short time. When a consumer has already used or

briefly owned their product, the consumer's mindset is

similar to that of the student who owned the mug in

the mug experiment mentioned above, regard the

product as "their own thing, " and this is where loss

aversion makes sense. Although some consumers may

not choose to buy the item at all when it is in the

window, because the item is classified as "their own",

loss-averse consumers are less likely to return the

item, thus achieving the purpose of promoting

purchase.

In this experiment, questionnaires and data

analysis were the methods which were used to collect

Chinese consumer data by distributing questionnaires

on an online platform, and then using SPSS to analyze

the data. Among them, 90% of the sample participants

were over 24 years old, with a high proportion of

males (67. 9%), and the majority of car owners lived

in China's developing cities. The results show that the

main determinants of consumers’purchase of auto

APMM 2025 - International Conference on Applied Psychology and Marketing Management

616

insurance are protection against financial losses

caused by accidents or damages, competitive pricing

and protection choices, which reflect the loss aversion.

At the same time, although most consumers will use

the price as a key reference point when purchasing

insurance, the correlation between price factors and

purchase decisions is low, and consumers are not

easily influenced by the decisions of others (Yang,

2023).

Then, consumers’loss aversion will also affect

companies’choice of information disclosure. In view

of the fact that consumers have expectations for

product quality, and these expectations cannot be

unified when the product quality received by

consumers does not meet their expectation. The gap

between psychology and reality will trigger

consumers’loss aversion to product quality, thereby

affecting consumers’consumption behavior.

Therefore, different merchants in different markets

will choose different information disclosures based on

different consumer reactions. Generally speaking, for

the monopoly market, because there is less

competition, the monopoly occupies most of the

market share, and consumers have fewer choices, so

the loss aversion of consumers has less impact on their

profits, and their information disclosure will be

relatively small; On the contrary, for high-quality

enterprises in the competitive market, the disclosure

of information can reduce the loss of users caused by

consumer loss aversion, and their subsequent profits

are likely to increase, because consumers’loss

aversion promotes their information disclosure, so that

they can achieve quality differentiation and

comparative advantage, so their information

disclosure threshold will be higher. For low-quality

companies, the profit after the disclosure of

information may be reduced, because they may not

only lose an advantage in the competition, but also

bear the cost of information disclosure, so they often

disclose no information or disclose less information

which is good for them. For example, some newly

opened restaurants choose to offer food samples to

customers to reduce customer uncertainty about the

quality and taste of the dishes. Or, in the cosmetics

industry, companies will launch cosmetics samples,

trial packs, etc., to reduce consumer uncertainty; The

film industry releases movie trailers. This is no

different for software companies. For example,

Marketo helps consumers mitigate the impact of loss

aversion and make more informed decisions by

providing free demos to show potential customers the

actual value of their products (Zhang & Li, 2021).

In marketing, consumers’loss aversion motivates

merchants to maintain price stickiness and exaggerate

losses, which also causes different information

disclosure situations for different companies under

different conditions. These applications start in

different directions, changing the way consumers

spend while also bringing benefits to the business.

However, not every merchant's strategy for

consumer loss aversion will yield the desired results.

This is because in addition to loss aversion, other

factors such as cognitive needs also have an impact

on consumers. Although most consumers are loss-

averse, their cognitive needs will be different, and

cognitive needs reflect the different ways they think

about different things. Researchers divide the way of

thinking into two circuits, one central and one

peripheral. Consumers who are accustomed to

thinking in a central way are more inclined to think

deeply, and are classified as consumers with high

cognitive needs (high NFC consumers), who are not

easily teased by the superficial "tricks" of merchants,

and only stay in verbal marketing methods not only

fail to attract them, but may also damage their trust in

merchants. When the audience is a loss-averse

consumer with high NFC, the signal marketing of

merchants not only fails to promote consumption, but

backfires and loses business credit; Consumers who

are accustomed to using peripheral routes to think

often only rely on superficial clues, which are called

low-cognitive demand consumers (low-NFC

consumers), which is also destined for superficial

marketing tricks that can stimulate their consumption

without affecting their business credit.

Therefore, when merchants conduct marketing,

their strategies are often affected by factors other than

loss aversion, so merchants cannot only depend on the

loss aversion characteristics of consumers when

making marketing decisions. However, the impact of

different factors and loss aversion on marketing

methods and consumer behavior is still uncertain, and

these are really worthy to be studied in the future

(Cacioppo et al., 1986).

3.2 Loss Aversion’s Effect in Financial

Investment

loss aversion also has a strong impact on the financial

investment. For instance, whether or not investors

choose to enter the stock market, they are actually

affected by loss aversion. Due to the high volatility

and risk of stocks, investors who are sensitive to

losses are more likely to choose not to enter the stock

investment market in order to avoid losses. In

addition, compared with traditional economics, the

loss aversion theory breaks through the assumption of

"rational people" and provides more reasonable and

Loss Aversion’s Inﬂuence and Application in Marketing and Financial Investment

617

further explanations for many economic phenomena

(Yang, 2019).

For example, the phenomenon of equity premium,

which could not be explained by traditional financial

theories, has been solved with the help of loss

aversion theory. Equity premium refers to the

additional return on equity investment over return on

risk-free assets, determined by comparing return on

equity investment with return on risk-free assets.

Risk-free assets often refer to investment instruments

with very low default risk, such as treasury bonds, and

their returns are relatively stable. However, due to the

high volatility of stocks, equity premiums can also

fluctuate, which has an impact on the financial

investment market. What’s more, because there are

many influencing factors of such fluctuations, the

influencing factors of equity premium fluctuations

are very worthy of research. Since 1926, the

annualized real return on equities has been about 7 %,

while the real return on Treasuries has been less than

1%, and the gap between the two is too great to be

explained by traditional investment risk aversion

theory. The explanation of loss aversion theory is

reasonable and understandable.

In fact, investors are short-sighted in the

investment process, compared with long term

investment, their attention is more focused on the

short-term.Moreover, because investors will be

affected by loss aversion, investors will have short-

sighted loss aversion when investing. In other words,

when investors invest, they will pay more attention to

short-term gains and losses than to long-term

benefits. Every time an investor evaluates an

investment product, it will be affected by its own

short-sighted loss aversion, so the more often an

investor evaluates an investment product, the more

his decision-making will be affected by short-sighted

loss aversion. Although stocks are risky and volatile,

they have higher returns in the short term. Therefore,

when the frequency of evaluations increases, that is,

the evaluation period decreases, the more attractive

stocks become to investors with a high degree of

short-sighted risk aversion, and more such investors

will choose to invest in stocks, so the equity premium

will rise. On the oppose, it will decrease. For

example, the study found that when the evaluation

period was 2 years, 5 years, 10 years and 20 years, the

equity premium decreased to 4. 65%, 3. 0%, 2. 0%

and 1. 4% respectively. The study strongly proves

that short-sighted loss aversion is an important factor

affecting equity premium (Benartzi & Thaler, 1995).

Through experiments found that although loss

aversion is widespread, there are many influencing

factors for loss aversion in different populations

under different circumstances. For example, the

degree of expected and actual loss aversion is

different, and the degree of loss aversion among

investors of different ages and genders is also

different.

In fact, the researchers found that there is a gap

between the expected loss aversion and the actual loss

aversion, and the degree of loss aversion in the actual

experience is greatly reduced. In the study, most of

the subjects’judgments about expected loss aversion

came from their subjective emotional judgments, and

their loss aversion coefficient was about 2. Therefore,

how is the loss aversion coefficient calculated? For

instance,a person who loses $100 gets very frustrated.

f he or she is as depressed as he is about picking up

$200 on the road, individuals has a loss aversion

factor of 2. Although subjects made predictions about

themselves, subjective emotional judgments did not

fully predict their judgments in real decisions, and

may even be overestimated. In practice, the loss

aversion coefficient of the subjects is about 1. 2, and

the comparison of the two data strongly points out

that the subjects have errors in their emotional

predictions. In other words, the researchers found that

people were more likely to be averse to loss when

they were only expecting it. In addition, because the

expected loss aversion level tends to be higher than it

actually is, investors who exhibit a high level of loss

aversion in anticipation tend to choose a low-risk

portfolio, although investors with a high level of

expected loss aversion feel similar to those with a low

level of expected loss aversion in the final investment

process.

Of course, the researchers also tested the

robustness of the experiment. In this experiment,

although the selected group of direct brokerage

clients of Barclays Brokerage, who were active in

trading and had a high portfolio value, did not fit the

general population profile, they were really fitted

with the investor profile. Given that the target group

of the study itself is the investment population, the

results of the experiment can be trusted; similarly,

although there was a previous hypothesis that the

experimental results might be influenced by risk

aversion, that is, the phenomenon that people choose

to avoid because they hate risk, the robustness test

also shows that the experimental results do not match

the risk aversion hypothesis, and the use of loss

aversion to explain it is a more reasonable choice to

exclude the interference of risk aversion in the

experimental conclusions (Merkle, 2020)

In addition to this, age and gender also affect the

level of loss aversion of different investors, which in

turn affects their final decision-making. In the

APMM 2025 - International Conference on Applied Psychology and Marketing Management

618

experiment, the researchers selected 450 investors

from northern India, divided into two age groups, 25-

40 years old and 41-55 years old, with subjects whose

occupations are related to finance, business and

education, with a total of 357 men and 93 women.

According to the selection of the sample, it is not

difficult to find that the sample range is small, and the

results may be affected by regional factors at the same

time, and further research is still needed in future

studies to improve the accuracy of the conclusions.

In this experiment, the researchers found that

investors in elder groups were more likely to be loss-

averse than those in younger groups, which is why

they chose portfolios with lower risk. Researchers

speculate that this may be due to the fact that older

investors have less time to recover from their losses

than younger investors, and that most older investors

have limited income. In other words, older investors

are less able to afford losses than younger investors.

This makes the investment risk of older investors less

risky than that of younger investors.

In addition, gender is also one of the factors

influencing loss aversion. Research shows that

women are more likely than men to loss aversion,

which is why female investors are more conservative

in their investment choices than male investors (Arora

& Kumari, 2015).

However, due to the limitations of the sample

selected in this study, such as the concentration in

northern India, the significant imbalance in the

proportion of men and women in the participants, and

the limited scope of occupation, further research is

still needed in this research direction.

4 DISCUSSION AND

SUGGESTION

From the merchant's side, the merchant should be

more "sincere" in the marketing process. While loss

aversion is evident among consumers, it does not

mean that all marketing will work as it be expected.

In the study of Cacioppo. , et al. (1986), consumers

were divided into two categories according to their

cognitive needs. Consumers who tend to think deeply,

that is, consumers who take the central route to think

deeply about content are high-NFC consumers; The

ones who use the peripherals to rely on simple clues

to think are low-NFC consumers. Studies have shown

that signal marketing that merely stays on the

marketing discourse can only stimulate low-NFC

consumer consumption, while high-NFC consumers

are indifferent (Cacioppo et al., 1986).

In other words, no real discount, no consumption

from high NFC person.

However, in this literature, the subjects were

undergraduate marketing students, and the width and

breadth of the test population were limited, and it was

impossible to rule out the influence of some factors

on this experiment, such as the education level factor

may affect the effect of stimulating consumer

consumption.

In addition, in view of the different responses of

loss-averse consumers to new and remanufactured

products, different businesses should adopt different

marketing strategies for different types of markets.

Loss-averse consumers are more likely to buy new

products than remanufactured products, and buying

nothing triggers loss aversion to loss-averse

consumers. Consumers who are averse to the loss of

remanufactured goods react in the opposite way (Liao

& Wang, 2020).

Therefore, a market with more loss-averse

consumers is conducive to merchants launching more

new products and increasing the market share of new

products; Markets with more loss-neutral consumers

are more conducive to the sale of remanufactured

goods.

In addition, disclosing product information is also

a good marketing strategy. Disclosure of product

information can make most consumers have

psychological expectations for the product, and

clearly know the quality, material, color and other

product information of the product they are facing, so

as to reduce the impact of loss aversion on the

purchase rate of the customer base.

For financial investors, especially stock investors,

it is a good idea to extend the evaluation period of the

stocks they invest in to reduce the impact of their

short-term loss aversion, given that frequently

evaluating the stocks they invest in will be more

likely to induce short-term loss aversion and lead to

decision-making errors. In addition, when most

investors are able to minimize the impact of their

short-term loss aversion, equity premiums will be

mitigated and stock market volatility will be less

alarming (Benartzi & Thaler, 1995).

In addition, because people tend to overestimate

their loss aversion in their estimates, it is a good

advice for investors with high sensitivity to loss

aversion to reduce their loss aversion rather than

constantly waiting and seeing. When they actually

practice, they will find that their loss aversion is not

as severe as they imagined, and their loss aversion is

not so high (Merkle, 2020).

For investor teams, it is a good idea to seek

diversity in the age of the team. Because older

Loss Aversion’s Inﬂuence and Application in Marketing and Financial Investment

619

investors tend to be more loss-averse, and younger

investors are the opposite, decisions that are

concentrated on the older end of the team may be too

cautious. Conversely, if the overall team members are

too young, the decision may be too aggressive, and

the diversity of the team’s age can achieve a balance

and reduce the impact of loss aversion bias on the

investment team's decision-making (Arora & Kumari,

2015).

5 CONCLUSION

This paper examines the application and impact of

loss aversion in the field of marketing and the impact

in the field of finance. In the field of marketing,

consumers’consumption behavior will be affected by

loss aversion, and the methods of disclosing

information, stabilizing prices, and highlighting the

losses caused by non-purchase can promote

consumers’purchases. In addition, consumers with

different levels of NFC will respond differently to

merchants’loss aversion strategies, and the higher the

NFC level, the higher the requirements for loss

authenticity. In the financial field, loss aversion can

explain the phenomenon of equity premium, and

people's self-expected loss aversion is often higher

than the loss aversion in their actual situation. In

addition, the older the investor is more sensitive to

loss aversion due to the decline in loss bearing

capacity and resilience. In the field of marketing,

businesses can use methods such as disclosure

information to stimulate consumers’loss aversion and

make profits, but they must also pay attention to the

authenticity of the activity; In the field of financial

investment, investors can reduce the impact of short-

sighted loss aversion on investment decisions by

reducing the number of evaluations, and can also

reduce the impact of loss aversion on decision-

making by enriching the age diversity of the investor

team. It helps to improve people's awareness of loss

aversion, and also improves people's ability to use

loss aversion.

REFERENCES

B. F. Liao, B. Y. Li, A marketing strategy in a closed‐loop

supply chain with loss‐averse consumers, Math. Probl.

Eng. 2018(1), 2560153 (2018)

B. F. Liao, B. Z. Wang, Impact of consumer loss aversion

on operations in the context of remanufacturing,

Complexity 2020(1), 3065819 (2020)

C. Merkle, Financial loss aversion illusion, Rev. Finance

24(2), 381-413 (2020)

J. T. Cacioppo, R. E. Petty, C. F. Kao, R. Rodriguez,

Central and peripheral routes to persuasion: An

individual difference perspective, J. Pers. Soc. Psychol.

51(5), 1032 (1986)

J. Zhang, K. J. Li, Quality disclosure under consumer loss

aversion, Manag. Sci. 67(8), 5052-5069 (2021)

L. Yang, Loss aversion in financial markets, J. Mech. Inst.

Des. 4(1), 119-137 (2019)

M. Arora, S. Kumari, Risk taking in financial decisions as

a function of age, gender: Mediating role of loss

aversion and regret, Int. J. Appl. Psychol. 5(4), 83-89

(2015)

M. Yang, What is the influence of loss aversion and

reference points on the decision-making behavior of

Chinese consumers concerning participating in car

insurance sales?, Open J. Bus. Manag. 11(06), 2811-

2823 (2023)

R. H. Thaler, C. R. Sunstein, Nudge: Improving decisions

about health, wealth, and happiness, Rev. and expanded

ed, New York, NY: Penguin (2009)

S. Benartzi, R. H. Thaler, Myopic loss aversion and the

equity premium puzzle, Q. J. Econ. 110(1), 73-92 (1995)

S. H. Kim, J. Lee, Firm behavior under consumer loss

aversion, Seoul J. Econ. 27, 171-186 (2014)

APMM 2025 - International Conference on Applied Psychology and Marketing Management

620