Why The Concept Of ‘Loss Aversion’ Could Help Explain Biden’s Weak Economic Numbers?

November 13, 2023

Why The Concept Of 'Loss Aversion' Could Help Explain Biden's Weak Economic Numbers

The economy in the United States is throwing off many good economic signals for quite a few months now, which also includes a very steady drop in inflation. Yet, the dour mood of the Americans hasn’t changed, and Biden’s economic ratings remain in the cellar.

Why? Well, the observers and the strategists of the West Wing have been trying to figure that out.

Perhaps there is at least one portion of the answer towards the rock bottom consumer confidence, which says at least one academic is “loss aversion,” which is a popular psychological concept.

Loss aversion is yet another cognitive bias which looks forward to explaining why people have been considering losses to be a lot more important in comparison to equivalent fain. In the world of finance, this word explains why the investors generally remember losing a dollar with a lot more clearance than actually gaining it back.

This idea has many important implications for how the Americans have been responding to a run up in the inflation during the earlier years of Biden’s term, as per the words of Francesco D’Acunto, who is a professor at Georgetown University studying how humans process economic laws.

He contends the rise in prices for each and everything, including gas to eggs, which is now seared in the heads of Americans, even when inflation is continuing to moderate.

“We definitely find in our research that there is a dramatic asymmetry in the reaction,”

he mentioned in his latest interview, tying the phenomenon to a greater research on loss aversion.

D’Acunto’s research continued for years and used a mixture of the existing consumer sentiment data along with the actual surveys, which were designed with the market research organization Nielsen. The co-authors here include Yuriy Gorodnichenko of the University of California, Michael Weber of Chicago Booth, and Oliver Coibion of the University of Texas.

“Even as we now have seen inflation actually going down quite dramatically and being almost back to pre-pandemic levels, people are much slower to adapt their views and beliefs,”

D’Acunto further added.

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upasana sarbajna

Upasana is a budding journalist who has a keen interest in writing. She considers writing as therapeutic and is most confident when she writes. She is passionate about music, movies and fashion. She writes in a way that connects with the audience in a personal level. She is optimistic, fun loving and opinionated.

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