Aversion

Losing 100 hurts roughly 2x more than gaining 100 feels good

Loss aversion is a psychological phenomenon where the pain of losing is stronger than the pleasure of gaining. This concept is rooted in the aversion principle, highlighting how individuals tend to prefer avoiding losses over acquiring equivalent gains.

Example

Imagine you have $100. Losing it feels significantly worse than gaining another $100 feels good.

Understanding loss aversion is crucial for making informed financial decisions and managing emotions related to money.

Related concepts

History of money

$100 today is worth more than $100 in the future

Overconfidence effect

Overconfidence leads to overtrading and underperformance

the disposition effect causes

Disposition effect: Investors sell winners prematurely and hold losers excessively

Interest rate

Raising interest rates makes borrowing more expensive

Endowment effect

People value owned items more than unowned ones

Anchoring effect

Anchoring bias skews sell decisions based on initial purchase price

Educational content, not financial advice.

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