Research on emotion regulation has focused upon observers' ability to regulate their emotional reaction to stimuli such as affective pictures, but many other aspects of our affective experience are also potentially amenable to intentional cognitive regulation. In the domain of decision-making, recent work has demonstrated a role for emotions in choice, although such work has generally remained agnostic about the specific role of emotion. Combining psychologically-derived cognitive strategies, physiological measurements of arousal, and an economic model of behavior, this study examined changes in choices (specifically, loss aversion) and physiological correlates of behavior as the result of an intentional cognitive regulation strategy. Participants were on average more aroused per dollar to losses relative to gains, as measured with skin conductance response, and the difference in arousal to losses versus gains correlated with behavioral loss aversion across subjects. These results suggest a specific role for arousal responses in loss aversion. Most importantly, the intentional cognitive regulation strategy, which emphasized “perspective-taking,” uniquely reduced both behavioral loss aversion and arousal to losses relative to gains, largely by influencing arousal to losses. Our results confirm previous research demonstrating loss aversion while providing new evidence characterizing individual differences and arousal correlates and illustrating the effectiveness of intentional regulation strategies in reducing loss aversion both behaviorally and physiologically.
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Thursday, April 09, 2009
Thinking like a trader reduces your loss aversion.
Sokol-Hessnera et al (open access). note that a cognitive regulation strategy can reduce loss aversion:
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