Like most people, I am painfully and personally aware of the behavioral finance finding that investors exhibit loss aversion, generally getting more pain from losses than pleasure from gains. Interestingly, however, loss aversion apparently reverses itself when smaller amounts of money are involved. Here is an abstract from a new study:
In a series of three experiments, we found that for small outcomes, [loss aversion] is reversed, and gains loom larger than losses. We explain this reversal on the basis of (a) the hedonic principle, which states that individuals are motivated to maximize pleasure and to minimize pain, and (b) the assumption that small losses are more easily discounted cognitively than large losses are.
Makes some sense. We are all reasonably good at shrugging off small losses, but we get really nutty when large numbers are involved. Other than starting a dry cleaner and exploiting people’s willingness to leave money in their clothes, there must be a way of taking advantage of this.