The role of Loss Aversion Cognitive Bias and its Results in Iran's Liability System Based on The Prospect Theory

Document Type : Scientific research

Authors

• habibollah rahimi
• nasrin Khodarahmi

Faculty of Law and Political Science, Allameh Tabatabai University, Tehran, Iran

https://doi.org/10.22067/economlaw.2023.77469.1191

Abstract

In mainstream economics, people make decisions based on a rational model based on the cost-benefit logic. However, the behavioral attitude, as the outcome of the teachings of behavioral economics, posits that decisions are not made in the real world by real individuals about real issues as defined in the rational models of decision-making (Cost-benefit); rather, the decision-making process is influenced by biases.
One of the theories in the field of behavioral economics that deals with the effect of these biases on individuals’ decisions is the prospect theory, which focuses on the effect of loss aversion bias on the decision-making process. This study investigates the effect of loss aversion bias on the legislature’s decision-making based on the prospect theory and the teachings of behavioral economics.
The findings of this article confirm the existence of loss aversion bias-based thinking in the Iranian civil liability system, including the enacting of appropriate means of litigation, foundations of liability, and principles and rules of loss compensation. Using the prospect theory, this article seeks to find the traces of bias of loss aversion and evaluate the position of this bias in the liability system in order to provide a more realistic picture of the legislator’s decision-making.

Keywords

• Loss Aversion
• behavioral economy
• Prospect Theory
• Cognitive Bias

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