Reflection effect
Preferences mirror-flip when a choice between gains is recast as the same choice between losses.
What it means
The reflection effect is the finding that risk preferences reverse, like a mirror image, when the outcomes of a prospect are reflected from gains into losses. People who are risk-averse over gains — preferring a sure $3,000 to an 80% chance of $4,000 — become risk-seeking over the corresponding losses, preferring an 80% chance of losing $4,000 to a sure loss of $3,000. This reversal is direct evidence that choices are governed by a value function that is concave for gains and convex for losses, rather than by the utility of final wealth. It also undercuts the idea that risk aversion is a stable personality trait, since the same individual switches sign with the frame. The effect is foundational to prospect theory and closely tied to the fourfold pattern.
Examples
The same manager who locks in a guaranteed bonus will, facing a guaranteed shortfall, gamble on a risky project that could erase it.
A gambler who pockets a small sure win early in the evening will, once £200 down, start chasing it with long-odds bets that offer a shot at getting back to even.
Offered a certain settlement, a claimant takes it rather than gamble on trial; the defendant facing the same certain payout prefers the trial's chance of paying nothing at all.
First described in Kahneman & Tversky (1979).