“The evidence says that a loss hurts about twice as much as a gain of the same size, so there is a large asymmetry,” said Patricia Tovar Rodriguez, author of the 2009 paper on loss aversion and trade and now a professor at Pontifical Catholic University of Peru. “Losers may therefore have a much larger incentive to lobby, and to lobby harder, for the removal of those trade barriers.”
Caroline Freund, an author of the 2004 paper and now director of macroeconomics, trade and investment at the World Bank, agreed that the old pattern could reverse. There’s another wrinkle, she notes: In the past, the dynamic was that smaller, declining industries became forceful opponents of trade. Now, the sectors that stand to lose, like the auto industry, are considerably bigger than the ones likely to experience direct gains, like the aluminum and steel industries.
“Lobbying against a policy that hurts a relatively bigger group should be even stronger, especially when the gains are fairly isolated,” she said.
You can expand the idea of loss aversion far beyond the realm of international trade.
President Obama’s health care law experienced miserable polling numbers in the initial years after its 2010 passage, with more people disapproving of the Affordable Care Act than approving of it, according to the Kaiser Health Tracking Poll. But those lines crossed in late 2016 as Republicans gained more power to repeal the law, and now the A.C.A. is favored by a six-percentage-point margin.
There are many ways to interpret that, but one of them is through the prism of loss avoidance. Perhaps in the rollout of Obamacare, the people who had something to lose — either through higher taxes or the risk of losing a health plan they were happy with — were most engaged.
Then, once the law was fully enacted and there was a president seeking to undermine it, the politics of loss aversion shifted, with people who had gained insurance more likely to be energized. That certainly lines up with the ferocity of the protests against legislative efforts to repeal the A.C.A. in early 2017 — and with the comparison to the energy of anti-Obamacare forces in earlier years.
Then there’s tax policy. The tax overhaul passed at the end of 2017 cuts taxes for most American households. But loss aversion might help explain why its polling numbers are not what you might expect for legislation that leaves more money in most people’s pockets.
