Variance-seeking for positive (and variance-aversion for negative) experiences

About this book

In contrast to research which has conflated losses with negative experiences and gains with positive experiences, we argue that because reference points are set by memories of extremely good and bad experiences, most outcomes are seen as losses in positive domains and as gains in negative domains. Utility is thus concave across outcomes in negative but convex in positive domains, inducing variance-aversion in negative and variance-seeking in positive domains. Prevention-focused and older individuals - who engage in processing that shifts reference points to less extreme instances - show a decreased sensitivity to variance. We discuss the marketing implications of preferences for variance.