Does Loss Aversion Exist?

Previous studies on loss aversion have shown mixed results for small stakes decisions. This thesis provides a parameter-free measurement of the utility function of individuals. The main goal is to measure utility for both gains and losses and determine whether loss aversion can be seen in the preferences of the subjects. Additionally, the thesis provides a test of prospect theory and its central features. The results include finding loss aversion on the individual level and aggregate level. The magnitude of loss aversion is lower than previous research for higher stakes decisions. The subjects show traditional S-shaped utility; concave for gains and convex for losses. Utility is similar for risk and uncertainty. Ambiguity aversion and reflection were supported by the findings. The results highlight that loss aversion may be less stable as originally predicted. Further, the results confirm that utility is reference-dependent and reinforce the position of prospect theory as a leading theory in decision under risk and uncertainty.