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Does our "loss aversion" explain enthusiasm for a graduate tax?

By Richard Holton   February 2004

It is an axiom of economics that people would rather have more than less. Yet people often behave in a way that defies the axioms of economics. A new branch of social science is devoted to explaining why people arrange their preferences in an apparently irrational way. The new approach is called “prospect theory.” The key idea, in the words of Daniel Kahneman, who shared the Nobel prize in economics in 2002, is that losses loom larger than gains. Prospect theory may explain why many people seem to find a “graduate tax” more acceptable than “top-up fees,” even if the…

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