When do negative characteristics deter us and when do they attract us?

What is it about?

Do certain minor blemishes (such as Maddona's and Ehud Barak's moles) improve a person's or an object's attractiveness ? The current study focuses on the effect adding minor negative financial outcomes to a investment option, and the effect of such outcomes on preference of this option during an experiment. It specifically examine conditions in which people find alternatives that produce negative outcomes as more attractive than those that do not produces them. It also examines to what extent people avoid alternatives merely because of small negative outcomes. The results indicate that when an alternative is a) highly advantageous in normative terms - meaning that it pays off to prefer it, b) the losses involved are small and predictable, c) individuals get unbiased feedback from this alternative meaning that they are unlikely to avoid the alternative completely immediately after the minor negative outcome, and d) after an initial exposure period; then an alternative does indeed become more attractive when it encapsulates minor negative outcomes.

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Why is it important?

The classical reference to losses in behavioral economics is known as loss aversion, the notion that the utility of losses is larger than gains. The current study points out at a phenomenon that is clearly at odds with loss aversion: it shows that in some conditions minor losses even increase the attractiveness of the alternative. Importantly, it also portrays the boundary condition of this phenomenon. Another relevant finding is that the avoidance effect of minor losses - when it emerges - is quickly wiped away after few experiences with the alternative producing losses. These findings add to the growing literature showing that the effect of losses is far more complex than just "loss aversion". Specifically, the current findings are easily explain by the suggestion that losses increase task attention. This explains why when an advantageous alternative produces minor losses it becomes more attractive: When more attention is allocated to the task people are more likely to realize that the alternative is indeed attractive. Notice that "loss attention" posits an effect for losses that is exactly the reverse of that assumed by "loss aversion": instead of biasing people losses are assumed to increase people's sensitivity to the decision outcomes.

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