Annals of Health Law
STRATEGY AGAINST SMOKING
mental accounts marks an aspect relevant for the purposes of this article,
illustrated with the following example: when forced into choosing either to
buy a fountain pen for twenty-five dollars or to visit a store within a fifteen-minute walking distance where the same pen costs eighteen dollars, the vast
majority of participants is willing to accept the additional stretch. 105 In case
the purchase object is a $455 suit that costs $448 in the other store, only a
significantly smaller number of the participants are willing to do so,
although the saving amounts to seven dollars in both constellations. 106
Apparently, the sensitivity for values decreases with the relative amount in
question. Therefore, a $100 discount on considerably more expensive
premiums can be expected to be regarded as less valuable than a separate
$100 check because in the latter case the $100 will not be related to the
larger mental account of the premium but will be perceived as an
independent gain. 107
f. Loss Aversion
Another robust finding in behavioral economics is that humans
significantly prefer avoiding losses over acquiring gains. 108 As Kahneman
and Tversky have phrased it: “losses loom larger than gains.” 109 Loss
aversion is shown even more reliably for anticipated than for experienced
outcomes110 and, therefore, can be qualified as an “affective forecasting
error.” 111 This error has been identified in a variety of situations112 and is
105. DAN ARIELY, PREDICTABLY IRRATIONAL – THE HIDDEN FORCES THAT SHAPE OUR
DECISIONS 19-20 (2008).
106. Id. See also Richard H. Thaler, Toward a Positive Theory of Consumer Choice, 1 J.
ECON. BEHAV. & ORG. 39, 50-51 (1980); Tversky & Kahneman, supra note 104, at 457.
107. Kevin G. Volpp et al., Redesigning Employee Health Incentives — Lessons from
Behavioral Economics, 365 N. ENG. J. MED. 388, 389 (2011) [hereinafter Redesigning
Incentives]; Kevin G. Volpp et al., A Randomized, Controlled Trial of Financial Incentives
for Smoking Cessation, 360 N. ENG. J. MED. 699, 707 (2009) [hereinafter Financial
Incentives] (referring to Richard H. Thaler, Mental Accounting and Consumer Choice, 4
MKTG SCI. 199 passim (1985)).
108. See Daniel Kahneman & Amos Tversky, Prospect Theory: An Analysis of Decision
Making Under Risk, 47 ECONOMETRICA 263, 268-269 (1979); Daniel Kahneman & Amos
Tversky, Loss Aversion in Riskless Choice: A Reference-Dependent Model, 106 Q. J. ECON.
1039 passim (1991). But see A. Peter McGraw et al., Comparing Gains and Losses, 21
PSYCHOL. SCI. 1438 passim (2010) (showing that loss aversion is weaker when gains and
losses are judged separately, hence differentiating between experiments including tasks that
encourage gain-loss comparisons and those including tasks that discourage them).
109. Kahneman & Tversky, supra note 108, at 279.
110. See Daniel T. Gilbert et al., Looking Forward to Looking Backward – The
Misprediction of Regret, 15 PSYCHOL. SCI. 346, 347-348 passim (2004).
111. See Deborah A. Kermer et al., Loss Aversion is an Affective Forecasting Error, 17
PSYCHOL. SCI. 649 passim (2006).