How Cultural Differences Influence Individuals’ Predisposition to Loss Aversion

Abstract

Loss aversion, the natural human tendency to assign a higher sensitivity to losses than equivalent gains, is a cognitive bias whose potency is governed by a number of cultural variables. In this literature review, we survey the varying significance of individualism, masculinity, uncertainty avoidance and power distance on loss aversion, hypothesizing that they are all positively correlated. This review finds individualism to be the most indicative of loss aversion, while the respective effects of the other three factors, while generally agreed to function as posited by our hypothesis, require further research for conclusive results. In order to reduce the prevalence of loss aversion at a societal level, the implementation of social (i.e. collectivist) safety nets – support from dependable networks (whether family or friends) – is helpful. On an individual level, engaging in cognitive reappraisal, namely dismissing subjective emotions for a more detached and objective perspective, is efficacious.