According to prospect theory, several small losses should have a strongest emotional impact than a single big loss of the same amount. On the other hand, persuasion practice shows that is often effective to split big losses/expenses into small pieces (e.g. buy the subscription, it costs like a coffee per day). What do you think about this apparent inconsistency? How would you explain the difference to your students?
In effect you have two different processes at work. The former (experiecning a big loss) is omething you already have which is an endowment and so you experience loss aversion. In the latter, say like buying a sbscription, that is eomthing you buy. In effect i would argue you have two diferent decieion making processes at play
I suspect that the idealised Prospect Theory curve doesn't actually hold for small monetary costs and losses. Basically, at some point it is likely to be the case that a cost (or loss) is so small as to have no impact on a person. That would help explain why people buy lottery tickets - the cost of a ticket is small enough as to have no observable impact on their lifestyle whereas the potential gain represents a significant change. So, even though the probability of the lottery win is negligible, it outweighs the zero cost of the ticket (in terms of lifestyle change). Same goes for the "coffee a day" comparison - it's an argument about the utility of the decision in terms of your overall lifestyle rather than in terms of money.
Harinck, F., Van Dijk, E., Van Beest, I., & Mersmann, P. (2007). When gains loom larger than losses reversed loss aversion for small amounts of money. Psychological science, 18(12), 1099-1105. is an experiment on the issue that might be useful to you.
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