Exponential Growth Bias and Loss Aversion in the Context of COVID-19 and the Moderation Effect of Need for Cognition

Abstract: Humans have difficulties grasping the notion of exponential growth and often underestimate the accumulated final value, a phenomenon called exponential growth bias (EGB). During the COVID-19 pandemic, this tendency led to the inaccurate judgment of the virus spread, ultimately making safety measures seem less important. In prospect theory, loss aversion refers to the tendency of perceiving loss as more severe than a gain of the same magnitude is perceived as good. The question addressed was whether loss aversion through the valence of framing influences the judgments of exponential changes within the context of COVID-19. Furthermore, the association between EGB and the individual characteristic Need for Cognition (NFC) was investigated. Participants (n=129) were randomized into one of the two framing conditions (Recovery or Infection) and were presented with six EGB problems with different change rates and the six-item version of the Need for Cognition Scale. The results confirmed the existence of EGB at all growth rates (+5%, +15%, +25%), while the effect of EGB was mixed for exponential decline. The framing did not show a considerable effect on the accuracy of judgments. Simple linear regression analyses indicated that NFC moderates the effect of EGB at higher growth rates (i.e., at +15% and +25%). Overall, the results were more consistent and clearer for exponential growth than for exponential decline. The underestimation of exponential growth in the context of COVID-19 is quite alarming as it entails the risk of insufficient behavioral changes, which can lead to serious consequences for both the individual and society.