The Psychology of Loss Aversion

An article in Psychology Today discusses loss aversion, and how regulating emotion and taking a different perspective can reduce it—and “help people overcome potentially disadvantageous decision biases.” Loss aversion, the article explains, is an expression of fear, which is why humans focus on negative events more than on positive ones. This shows up in consumer behavior, it says, in that price increases will lead to a great percentage drop in demand than price decreases will… Read More

Study’s Findings Challenge Loss-Aversion Theory

One tenet of behavioral finance is the “disposition effect” — the tendency for investors to sell winners rather than losers in their portfolio. And a common reason cited for why that occurs is aversion to loss; locking in losses causes pain, while locking in winners causes positive feelings. But a new study offers evidence that loss aversion isn’t at the heart of the disposition effect. In “Are Investors Really Reluctant to Realize Their Losses? Trading… Read More

Battling Your Brain: How Loss Aversion Hurts Investors

Human beings are prone to a variety of behaviors that make them bad investors, and in an article for The Economic Times, Vivek Kaul looks at a major one: “loss aversion”. First identified and named by psychologists Daniel Kahneman and Amos Tversky, loss aversion is a phenomenon in which “people tend to base their decisions on perceived gains rather than perceived losses because the emotional impact of losses is far greater than that of gains,”… Read More