Knowledge Tree
Loss aversion
Also known as: loss aversion bias
from single model dimensionNo definition has been generated yet — showing the first model analysis as a summary.
Loss aversion is a cognitive bias where the emotional pain of losses outweighs the pleasure of equivalent gains, as defined by Kahneman (2011) and central to Prospect Theory by Kahneman and Tversky. This bias, consistent with prospect theory, drives investors to hold declining stocks longer than rational, fearing to realize losses, a pattern termed the disposition effect and evidenced in Odean's 1998 study reluctance to realize losses. It leads to poor decisions like avoiding lucrative investments or overly conservative strategies, per Ariely and Loewenstein (2006) and Thaler & Sunstein (2008), affecting retail investors alongside biases like overconfidence and herding, as noted in studies such as Shah and Malik (2021). Beyond investing, it explains real estate persistence, homeowner pricing, consumer hesitation on returns, and cash hoarding, while positively channeled for budgeting. Mitigation includes education, diversification, predetermined exit strategies, and advisor interventions focusing on objective evaluation. Some research, like Gal and Rucker (2018), suggests situational dependence, and Christoph (2020) notes overestimated impact. Overall, understanding loss aversion, per behavioral economics research, promotes better financial outcomes.
Model Perspectives (2)
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Loss aversion is a cognitive bias where the emotional pain of losses outweighs the pleasure of equivalent gains, as defined by Kahneman (2011) and central to Prospect Theory by Kahneman and Tversky. This bias, consistent with prospect theory, drives investors to hold declining stocks longer than rational, fearing to realize losses, a pattern termed the disposition effect and evidenced in Odean's 1998 study reluctance to realize losses. It leads to poor decisions like avoiding lucrative investments or overly conservative strategies, per Ariely and Loewenstein (2006) and Thaler & Sunstein (2008), affecting retail investors alongside biases like overconfidence and herding, as noted in studies such as Shah and Malik (2021). Beyond investing, it explains real estate persistence, homeowner pricing, consumer hesitation on returns, and cash hoarding, while positively channeled for budgeting. Mitigation includes education, diversification, predetermined exit strategies, and advisor interventions focusing on objective evaluation. Some research, like Gal and Rucker (2018), suggests situational dependence, and Christoph (2020) notes overestimated impact. Overall, understanding loss aversion, per behavioral economics research, promotes better financial outcomes.
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Loss aversion refers to the psychological tendency where individuals experience the pain of losses more intensely than the pleasure of equivalent gains, often described as losses looming twice as large as gains. This concept, first proposed by psychologists Amos Tversky and Daniel Kahneman in 1979 as a core element of Prospect Theory, leads people to prioritize avoiding losses over pursuing gains, resulting in risk-averse behaviors. In financial decision-making, it causes investors to hold losing investments too long while selling winners prematurely, adopt conservative strategies, and become more pronounced during economic downturns, as evidenced by studies like H. Srivastava, S. Moid, and N. J. Rushdi's 2024 research on 196 working women investors in India's Uttar Pradesh stock market, which found significant positive impact from loss aversion alongside anchoring and herding. However, a 2025 study by H. L. Do et al. indicated it has the least influence compared to anchoring and herding among similar investors. Mitigation strategies include pre-commitment to long-term plans to avoid panic selling. In marketing, loss aversion is exploited through scarcity, urgency, and framing losses—like insurance ads stressing uninsured risks or limited-time deals such as Amazon Lightning Deals—triggering stronger responses to potential misses than gains, as noted by Richard Thaler and Alex Imas in real-world applications.
Facts (111)
Sources
Biases in Behavioral Finance - World Scholars Review worldscholarsreview.org Sep 15, 2024 13 facts
claimSchmidt and Traub (2001) suggested that there is a significant psychological difference between losing and gaining an identical quantity, and that loss aversion impacts decisions, which in turn affects consumer and economic activities.
claimChristoph (2020) suggests that investors tend to expect significantly unfavorable responses to financial losses, but their actual experience of those losses is less impactful, which indicates an overestimation of loss aversion.
claimEmotional biases, such as herding bias, loss aversion, house money effect, mental accounting, recency bias, regret aversion bias, framing effect, hindsight bias, representative bias, and the endowment effect, are driven by feelings and emotions.
referenceShah, I., and Malik, I. R. published 'Role of Regret Aversion and Loss Aversion Emotional Biases in Determining Individual Investors’ Trading Frequency: Moderating Effects of Risk Perception' in Humanities & Social Sciences Reviews in 2021.
claimGal and Rucker (2018) claimed that loss aversion is a universal principle, though their experiments showed that the impact of losses and gains is situation-dependent.
referenceKhan (2017) authored 'Impact of Availability Bias and Loss Aversion Bias on Investment Decision Making, Moderating Role of Risk Perception', which explores how availability bias and loss aversion affect investment decisions, with risk perception acting as a moderator.
claimLoss aversion is the behavioral tendency to prefer avoiding losses over acquiring equivalent gains.
claimShah and Malik (2021) discovered that regret aversion and loss aversion have statistically significant negative impacts on individual investors' trading frequency, while risk perception has an insignificant but positive impact.
referenceSchmidt, U., and Traub, S. published 'An Experimental Test of Loss Aversion' at Christian-Albrechts-Universität zu Kiel in 2001.
claimDuxbury et al. (2015) claimed that the house money effect coexists with the disposition effect, a variant of loss aversion where investors hold onto losing stocks and sell winning ones.
claimNovemsky and Kahneman (2005) discussed that loss aversion remains consistent regardless of whether extra money is at stake.
referenceNovemsky and Kahneman (2005) defined the boundaries of loss aversion in their research.
referenceGal and Rucker (2018) published 'The Loss of Loss Aversion' in the Journal of Consumer Psychology, which challenges or re-evaluates the concept of loss aversion.
Behavioral Economics: Everyday Biases That Shape Money Choices verifiedinvesting.com 10 facts
claimLoss aversion can cause individuals to hoard cash or avoid healthy debt, such as a reasonable mortgage for a stable home investment.
claimLoss aversion is a behavioral economics phenomenon where individuals overweight losses compared to gains.
claimLoss aversion explains why individuals hesitate to return expensive purchases despite experiencing buyer's remorse.
claimChanneling loss aversion positively can encourage disciplined budgeting and the creation of robust emergency funds.
claimLoss aversion explains why homeowners set unrealistic asking prices to recoup initial investments despite market conditions that do not support those prices.
accountAmelia, a cautious spender, favors consistent and stable savings plans due to loss aversion and a fear of losing money internalized from growing up in a household with periodic financial stress.
claimLoss aversion drives financial behaviors such as refusing to sell underperforming stocks because locking in a loss feels too painful, even when reinvesting in a better opportunity might be more beneficial.
claimLoss aversion can trigger mass sell-offs during uncertain financial times.
claimProspect Theory, developed by Daniel Kahneman and Amos Tversky, asserts that people experience loss aversion, where the pain of losing money outweighs the pleasure of winning an equivalent amount.
accountFinancial decisions made by individuals, such as the fictional characters Amelia and Raj, are influenced by universal human biases like anchoring and loss aversion, which are patterns found across generations, cultures, and income brackets.
Financial Decision-Making: Psychology, Behavior & Risk Insights climbproject.org.uk Aug 11, 2025 8 facts
claimCognitive biases like overconfidence and loss aversion can distort financial risk assessment, while emotional responses like fear or excitement impact decision-making.
claimCognitive biases (such as overconfidence or loss aversion), emotional influences (such as fear or excitement), and social pressures (such as peer influence) are factors that can distort judgment and sway financial decision-making.
claimCognitive biases, such as overconfidence or loss aversion, shape financial perceptions and decisions.
claimResearch indicates that cognitive biases, specifically loss aversion, become more pronounced during economic downturns, causing people to avoid necessary investments or miss opportunities for growth.
claimLoss aversion impacts risk assessment and can lead to overly conservative financial choices.
claimLoss aversion bias can cause individuals to hold onto losing investments.
claimCognitive biases, such as loss aversion, can distort judgment in financial decision-making, leading to suboptimal outcomes.
claimThe use of heuristics and biases, such as loss aversion, can influence financial decision-making by leading individuals to overestimate potential losses compared to gains.
5 Behavioral Biases That Can Impact Your Investing Decisions online.mason.wm.edu Feb 5, 2025 6 facts
procedureTo overcome loss aversion bias, investors should develop predetermined exit strategies and assess investments based on current market value rather than initial trading price.
procedureFinancial advisors help clients identify and mitigate loss aversion bias by encouraging them to: (1) evaluate investments objectively based on factual market conditions, (2) avoid emotional attachment to specific assets, (3) implement systematic portfolio review processes, (4) establish clear criteria for both buying and selling decisions, and (5) focus on overall financial stability rather than individual investment declines.
claimLoss aversion bias leads investors to hold onto declining investments longer than rational economic decisions dictate.
claimReal estate investors frequently demonstrate loss aversion bias by maintaining losing investments well beyond the point where portfolio adjustments would be beneficial.
claimLoss aversion bias causes investors to experience the emotional impact of losing money more intensely than the satisfaction of achieving a similarly sized gain, often leading them to hold onto declining investments longer than rational economic decisions dictate.
referenceThe article '5 Behavioral Biases That Can Impact Your Investing Decisions' cites Investopedia for behavioral finance and confirmation bias, Schwab Asset Management for overconfidence and herd mentality biases, Mirae Asset Mutual Fund for loss aversion bias, and SmartAsset for anchoring bias.
The Impact of Cognitive Biases on Professionals' Decision-Making frontiersin.org 6 facts
claimIndividual investors are impacted by overconfidence and the disposition effect, which is a consequence of loss aversion, in their decision-making.
referenceE. Zamir and I. Ritov published 'Loss aversion, omission bias, and the burden of proof in civil litigation' in the Journal of Legal Studies in 2012.
claimIn a 1998 study published in the Journal of Finance, Terrance Odean found that investors are reluctant to realize their losses.
claimThe disposition effect originates from loss aversion, a concept described in prospect theory by Kahneman and Tversky (1979).
claimThe disposition effect is typically related to loss aversion, a concept defined by Kahneman and Tversky (1979).
referenceResearch in behavioral finance has identified several cognitive biases affecting financial decision-making, including overconfidence (Barber and Odean 2000, 2001; Chuang and Lee 2006; Glaser and Weber 2007; Odean 1999), loss aversion (Benartzi and Thaler 1995), the disposition effect (Boolell-Gunesh et al. 2009; Odean 1998; Shefrin and Statman 1985), home bias (Coval and Moskowitz 1999), regression to the mean (De Bondt and Thaler 1985), and herding behavior (Grinblatt et al. 1995).
The Psychology Behind Financial Choices: The Role of Cognitive ... tutoring.hsa.net 5 facts
claimComprehending the impact of loss aversion fosters a more diversified and balanced investment strategy, which lessens risk aversion and enhances growth (Thaler & Sunstein, 2008).
procedureAddressing loss aversion in investing involves educating individuals to understand the emotional impacts of losses and encouraging rational choices, such as diversifying investments or rebalancing portfolios to minimize risks and capture long-term gains (Ariely and Loewenstein, 2006).
claimLoss aversion can lead to poor investment decisions, such as holding onto stocks that are losing value or avoiding lucrative investments due to the fear of potential losses.
claimCognitive biases, specifically present bias and loss aversion, along with social and emotional influences, significantly impact financial behaviors and often hinder the achievement of long-term monetary objectives.
claimLoss aversion, a cognitive bias where individuals experience a more significant emotional impact from losses than from equivalent gains or profits, plays a crucial role in personal economic decisions (Kahneman, 2011).
Psychology Of Financial Decision-Making - Meegle meegle.com 5 facts
accountAn investor used a pre-commitment strategy to stick to a long-term investment plan, which helped them avoid panic selling during market downturns and overcome loss aversion.
claimCognitive biases, defined as systematic errors in thinking, include overconfidence, loss aversion, and anchoring, all of which affect financial decision-making.
claimKey principles of the psychology of financial decision-making include cognitive biases (systematic errors in thinking like overconfidence, loss aversion, and anchoring), emotional influences (the role of fear, greed, and regret), social norms (the impact of societal expectations and peer behavior), and mental accounting (the tendency to categorize money into different accounts based on subjective criteria).
claimCommon biases studied in financial decision-making include overconfidence, loss aversion, anchoring, and herd behavior.
claimLoss aversion, which is the fear of loss, can lead individuals to adopt overly conservative investment strategies.
The Influence of Behavioral Biases on Investment Decisions jmsr-online.com Jul 8, 2025 5 facts
referenceThe conceptual model of retail investor psychology identifies five core behavioral biases: overconfidence, loss aversion, herd behavior, anchoring, and mental accounting.
claimLoss aversion, a concept consistent with prospect theory, causes investors to experience losses more intensely than gains, which leads to the irrational holding of underperforming stocks.
claimExisting behavioral finance research often isolates specific biases like overconfidence, loss aversion, or herding, failing to account for how these cognitive and emotional distortions operate simultaneously in real-world investment scenarios.
claimThe conceptual paper 'The Influence of Behavioral Biases on Investment Decisions' examines the influence of overconfidence, loss aversion, herd behavior, mental accounting, and anchoring on the decision-making processes of retail investors.
claimFinancial advisors can improve client communication and portfolio design by using behavioral mapping tools to identify dominant client biases, such as anchoring and loss aversion, and offering tailored counseling.
Behavioral economics: what it is and three ways marketers can use it quirks.com 4 facts
claimMarketers can utilize various behavioral economics phenomena to sell products, including The Attraction Effect, Loss Aversion, Anchoring and Adjustment, The Certainty Effect, and Temporal Discounting.
claimLoss Aversion is a behavioral economics phenomenon that influences consumer behavior, particularly in the context of free offers where consumers avoid the pain of losing money.
claimOffering products for free, such as the Hershey's Kiss example, leverages the Certainty Effect by eliminating the consumer's pain of losing money, while also involving the behavioral economics phenomenon of Loss Aversion.
claimMarketers can utilize behavioral economics phenomena, including the Attraction Effect, Loss Aversion, Anchoring and Adjustment, the Certainty Effect, and Temporal Discounting, to improve product sales.
The Power of Scarcity and Urgency: Behavioral Economics in ... marketingcourse.org Apr 28, 2025 4 facts
claimScarcity and urgency tap into loss aversion by highlighting the potential loss of the opportunity to purchase an item.
claimFraming an offer in terms of a gain versus a loss can elicit different consumer responses due to loss aversion.
claimThe impact of scarcity and urgency in marketing can be amplified when combined with other behavioral concepts such as loss aversion, anchoring, and framing.
claimLoss aversion, a core concept in Prospect Theory, suggests that people feel the pain of a loss more strongly than the pleasure of an equivalent gain.
The Power of Behavioural Economics in Advertising - A Marketers ... linkedin.com Oct 27, 2024 4 facts
claim"Loss aversion" is the human tendency to prefer avoiding losses over acquiring gains.
claimInsurance companies use 'loss aversion'—the tendency to prefer avoiding losses over acquiring gains—to drive sign-ups by stressing what a consumer stands to lose by not being insured.
claimInsurance companies use 'loss aversion'—the tendency to prefer avoiding losses over acquiring gains—by stressing what a consumer stands to lose by not being insured.
claimInsurance companies use loss aversion in advertising by stressing what a consumer stands to lose by not being insured, rather than focusing on potential gains.
Examining Behavioural Aspects of Financial Decision Making - OUCI ouci.dntb.gov.ua 3 facts
referenceThe study by H. Srivastava, S. Moid, and N. J. Rushdi, published in 'Finance: Theory and Practice' (2024, № 4, p. 33-45), investigates the impact of anchoring, herding, and loss aversion on the investment decision-making of 196 working women investors in the Indian Stock Market (Uttar Pradesh, India).
claimIn a study published in Finance: Theory and Practice (2025), researchers H. L. Do, T.M. P. Vu, V. G. Nguyen, N. M. Vu, D. T. Nguyen, and T. V. Tran concluded that anchoring has the most influence on the investment decisions of working women investors, followed by herding, while loss aversion has the least influence.
measurementThe study by H. Srivastava et al. (2024) confirmed that anchoring, herding, and loss aversion bias have a significant positive impact on the investment decision-making of working women investors in the Indian Stock Market.
Behavioral Finance: The Psychology behind Financial Decision ... abacademies.org 3 facts
claimLoss aversion is the tendency to feel the pain of losses more intensely than the pleasure of gains, which can lead to suboptimal decisions such as holding onto losing investments for too long in hopes of a recovery, as noted by Reed et al. (2021).
claimLoss aversion is the tendency to feel the pain of losses more intensely than the pleasure of gains, which can lead to suboptimal decisions such as holding onto losing investments for too long in hopes of a recovery, according to Reed et al. (2021) as cited by Robinson Arran (2023).
claimLoss aversion is the tendency to feel the pain of losses more intensely than the pleasure of gains, which can lead to suboptimal decisions such as holding onto losing investments for too long in hopes of a recovery, as noted by Reed et al. (2021).
The Science of Marketing: Cognitive Biases That Shape Purchasing ... digitalmarketinglaboratory.com Jan 20, 2025 3 facts
claimThe psychological concept of loss aversion dictates that individuals feel the pain of losing potential options more intensely than the joy of gaining the chosen option.
claimThe Scarcity Effect is closely tied to loss aversion, urgency, and the fear of missing out (FOMO).
claimConsumer behavior concepts like the Decoy Effect, Contrast Effect, and Paradox of Choice are supported by psychological theories including prospect theory, loss aversion, and cognitive dissonance.
Psychological triggers in online shopping: The influence of scarcity ... academia.edu 2 facts
referenceT. E. Hwang (2024) analyzed generational variations in loss aversion and how these variations influence purchase decisions when consumers are presented with limited-time discounts.
referenceThe article 'Behavioral Economics in Pricing Strategies: A Review of Prospect Theory and Loss Aversion in Consumer Markets' reviews how prospect theory and loss aversion influence consumer markets.
Behavioral Economics: How Understanding the Brain Can Build ... socialmediaexaminer.com Feb 15, 2024 2 facts
claimHumans exhibit loss aversion, meaning they are more motivated to act to avoid losing something than they are to gain something, a psychological principle that can be leveraged in marketing messaging.
claimHuman brains are loss-averse and attempt to preserve their identity when individuals imagine an ideal future self, which marketers can leverage to motivate customers to make that future a reality.
Behavioral Finance: The Psychology Behind Financial Decisions - Ava meetava.com Aug 8, 2024 2 facts
claimInvestors typically exhibit loss aversion, where they are more willing to take risks to avoid losses than to achieve gains, which causes them to hold onto losing investments for too long and sell winning positions too early.
claimLoss aversion is the observation that people feel the pain of financial losses more acutely than the pleasure of equivalent financial gains.
The Influence of Cognitive Biases on Investment Decisions legfin.in Aug 21, 2024 2 facts
claimThe study 'Behavioral Economics: The Influence of Cognitive Biases on Investment Decisions' identifies overconfidence, loss aversion, and herd mentality as common cognitive biases that influence investor behavior during market booms and busts.
perspectiveUnderstanding cognitive biases such as overconfidence, loss aversion, and herd mentality can lead to better financial decision-making and risk management for investors.
Mind Over Money: Behavioral Economics and Financial Decision ... linkedin.com Dec 9, 2024 2 facts
claimBehavioral economics helps investors understand and address common pitfalls like herd behavior or loss aversion, which can lead to more rational strategies and better investment outcomes.
claimLoss aversion is a behavioral bias where individuals generally prefer to avoid losses rather than acquire equivalent gains, which can lead to overly conservative investment strategies and a reluctance to take necessary financial risks.
Understanding the Psychology of Impulse Buying in E-Commerce jmsr-online.com Aug 9, 2025 2 facts
claimMarketing and advertising cues, such as flash sales, personalized recommendation engines, and urgency-based messaging like 'Only 2 left in stock!' or 'Sale ends in 30 minutes', exploit cognitive biases like scarcity, loss aversion, and FOMO to drive impulsive online purchases.
claimMarketing and advertising serve as strong external stimuli for impulsive online purchases by exploiting cognitive biases such as scarcity, loss aversion, and fear of missing out (FOMO) through flash sales, personalized recommendation engines, and urgency-based messaging.
What happens when behavioral economics grows up? katymilkman.substack.com Oct 21, 2025 2 facts
claimRichard Thaler and Alex Imas assert that behavioral anomalies like loss aversion, limited attention, and the endowment effect are present in real-world, consequential decisions, not just in laboratory settings.
claimBehavioral economics includes the concepts that people are impatient and that losses loom larger than gains.
Behavioral economics, explained - UChicago News news.uchicago.edu 2 facts
Understanding the Human Side of Money: Behavioral Finance Basics thewealthguardians.com Jan 30, 2026 1 fact
claimLoss aversion is a behavioral tendency where individuals feel the pain of a loss more intensely than the satisfaction of a gain, often resulting in overly cautious decisions or a hesitation to sell declining investments.
Applying Behavioral Economics to Marketing, Policy, and Beyond econreview.studentorg.berkeley.edu Sep 6, 2023 1 fact
claimAmazon Lightning Deals, Starbucks limited-edition Pumpkin Spice Lattes, and marketing flyers regarding inefficient thermostats utilize loss aversion to encourage immediate consumer purchases.
The Role of Behavioral Economics in Investment Decision-Making online.utpb.edu 1 fact
claimLoss aversion occurs when an investor keeps an investment of low value for longer than is prudent because they fear missing an opportunity for the investment to grow, which ironically prevents them from mitigating losses.
The Scarcity Effect Online: How Limited-Time Offers Hijack ... linkedin.com 1 fact
claimQuantity-based scarcity, such as displaying messages like 'Only 2 left!' or 'Selling fast,' triggers loss aversion, which is the fear that a product will be permanently unavailable if not purchased immediately.
Financial Behaviour: The Psychology Behind Your Money ... jamalta.org 1 fact
claimLoss aversion can lead to risk-averse behaviour, where individuals avoid potentially lucrative investment opportunities due to the fear of potential losses.
How Scarcity Marketing Uses Limited Availability to ... marketmindshift.com Mar 13, 2025 1 fact
claimUnderstanding consumer psychology, specifically the principle of loss aversion, is essential for creating marketing strategies that effectively capture consumer attention.
Development of Behavioral Economics - NCBI - NIH ncbi.nlm.nih.gov 1 fact
claimThe framing of alternative decisions can determine whether possible options or outcomes are perceived as an overall loss or gain relative to a reference alternative.
Analysing the behavioural, psychological, and demographic ... - OUCI ouci.dntb.gov.ua 1 fact
claimBehavioral biases such as loss aversion, overconfidence, and herding have significant implications for financial risk management.
10 Psychological Tactics Businesses Use to Influence Your Buying ... moneywellth.com Sep 2, 2024 1 fact
claimThe loss aversion tactic influences consumer behavior because people are more motivated by the fear of losing an opportunity than by the potential to gain something.
Understanding Behavioral Aspects of Financial Planning and Investing financialplanningassociation.org Mar 1, 2015 1 fact
claimMany individuals anchor on the 2007–2008 financial crisis as a negative experience, which can lead them to become excessively risk-averse and loss-averse, resulting in increased worry and the under-weighting of equities in their portfolios.
Is advertising manipulative? | University of Nevada, Reno unr.edu 1 fact
claimConsumers are more emotionally invested in avoiding loss than in earning rewards, a psychological trait that advertisers exploit through flash deals and pseudo-urgency to trigger fear of missing out.
Marketing and Consumer Psychology - iResearchNet business-psychology.iresearchnet.com 1 fact
claimImpulse buying is often triggered by scarcity or urgency, which are rooted in the psychological concept of loss aversion, where individuals fear missing out more than they fear overspending, as described by Kahneman and Tversky (1979).
5 Biases Affecting Your Investment Decisions | Global Credit Union globalcu.org 1 fact
claimLoss aversion is an investing bias driven by the powerful emotion of regret, which can cause investors to make decisions based solely on avoiding loss.
Behavioral finance: the impact of cognitive biases | EDC Paris ... edcparis.edu Sep 2, 2024 1 fact
claimIndividuals value losses more than gains, a cognitive bias that leads some investors to limit risk-taking and settle for low-return investments.
Factors that can affect financial decision-making - North American northamericancompany.com Dec 14, 2024 1 fact
claimLoss aversion is the tendency for people to prefer avoiding losses over acquiring potential rewards, which can lead to avoiding risks even when those risks could result in larger gains; this can be mitigated by focusing on the long-term benefits of an investment.
Factors that can influence financial decisions midlandnational.com Feb 10, 2026 1 fact
claimLoss aversion is a psychological bias where individuals prefer to avoid losses rather than acquire potential rewards, which can lead to avoiding risks even when those risks could result in larger gains.