Advances in Economics, Management and Political Sciences
- The Open Access Proceedings Series for Conferences
Proceedings of the 2nd International Conference on Business and Policy Studies
Series Vol. 15 , 13 September 2023
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Loss Aversion and Protectionism
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Abstract
The concept of “loss aversion” in behavior economics was proposed by Kahneman and Tversky in 1979 with the famous prospect theory. Loss aversion is a cognitive bias suggesting that an avoidance of loss is preferred by people than an equivalent gain. The impact of loss aversion is profound in multiple areas of human life, including economics, society, politics, media, etc. This study aims to investigate the relation between loss aversion and trade policies, in particular, the implementation of protectionist trade policies. Literatures in the area of political economics about trade policy are reviewed. The Grossman-Helpman model, which predicts a set of determinants of trade policy, is discussed. Three empirical studies – the U.S. steel industry, the U.S. Section 301 proceedings, and the Chinese cotton industry – as well as the influence of loss aversion in each case, are analyzed and discussed in detail. Overall, the study draws its conclusion based on previous literatures and empirical studies, and it further confirms that loss aversion would lead to a risk-averse behavior of policy makers by reviewing empirical cases.
Keywords
loss aversion, cognitive bias, protectionism, trade policy, the Grossman-Helpman model
References
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Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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- Volume Title
- Proceedings of the 2nd International Conference on Business and Policy Studies
- ISBN (Print)
- 978-1-915371-73-7
- ISBN (Online)
- 978-1-915371-74-4
- Published Date
- 13 September 2023
- Series
- Advances in Economics, Management and Political Sciences
- ISSN (Print)
- 2754-1169
- ISSN (Online)
- 2754-1177
- DOI
- 10.54254/2754-1169/15/20230878
- Copyright
- 13 September 2023
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited