Loss Aversion Attenuates Under Time Pressure

It is well-established that people under time pressure make decisions that are of inferior quality. But are there situations in which time pressure might improve decision quality? Prior research has suggested that stress – at least in moderation and in particular contexts – can be beneficial for decision-making. Moderate levels of arousal can improve performance in a variety of domains, as suggested by the Yerkes-Dodson law (Andrews and Farris 1972; Deffenbacher 1994; Yerkes and Dodson 1908). Similarly, contexts in which effortful information processing is attenuated or non-existent, such as unconscious thought, can produce accurate and rational decisions (Dijksterhuis and Nordgren 2006). Drawing on three elements in prospect theory (reference dependence, loss aversion, diminishing sensitivity; Camerer 2000; Kahneman and Tversky 1979; Tversky and Kahneman 1991), we posit that loss aversion attenuates under time pressure – that is, people under time pressure no longer consider the hedonic impact of losses to be greater than that of gains, but roughly to be more equal, relative to those under no such constraints. This is because people consider time to be a resource, and the loss of time under time pressure is a loss of resource, placing them on the locally-convex portion of the value function. From this point, the hedonic impact of any further loss diminishes, relative to decisions from the status quo. In other words, loss aversion attenuates. This proposition thus relies on the critical assumption that people consider time to be a resource. Thankfully, for our purposes, this assumption is well-supported – at least for Western cultures. That time is a resource that people can “lose” is consistent with the Protestant ethic that “time is money”. Some people may see time as a holder of endless possibilities and opportunities, but most others see time as something that they can not slow down, stop, or turn back. Time thus is a resource that people must structure, with a lack of structure meaning a loss of a valued resource with high opportunity costs (Bockstael, Strand, and Hannemann 1987; Casey, Vukina, and Danielson 1995; Cesario 1976; Larson 1993; Shaw 1992).