Loss aversion
Loss aversion is the tendency to feel the pain of loss more strongly than the satisfaction of a comparable gain.
Definition
Loss aversion is the tendency to respond more strongly to a loss than to a comparable gain. It is one of the important elements of Kahneman and Tversky's perspective theory. It can influence financial, professional and personal decisions, for example by causing us to stick with an unprofitable option just because abandoning it would be psychologically felt as a loss.
Key ideas
Missing key ideas.
Practice and life
Before making a financial decision, write it down in two frames: "what can I gain" and "what can I lose", and then count the real probabilities of the scenarios.
Common misunderstanding
It is a mistake to ignore the opportunity cost of clinging to the status quo. Caution is often confused with rationality when the decision is driven by fear of loss.
Questions for self-reflection
No questions for self-reflection.
Sources
No sources.