Loss aversion.
In plain English
Loss aversion is the finding that losses hurt more than equal gains feel good, often described as losses looming larger than gains. Kahneman and Tversky built it into prospect theory in 1979, and studies since have put the pain of a loss at roughly twice the pleasure of the same-size gain. In money, it explains why people hold a losing stock to avoid crystallizing the loss, keep money out of the market for fear of a drop, or fixate on a small fee while ignoring a larger missed return. The feeling is real; the trouble is when it drives choices that cost more than the loss being avoided.
01Why it matters
Because the fear of a loss outweighs the pull of a gain, loss aversion can keep people too cautious to invest or too slow to cut a losing position, so naming it helps separate the feeling from the math.
02The math, step by step
Offered a coin flip that pays 150 dollars on heads but costs 100 dollars on tails, many people refuse, even though the average outcome is a gain, because the possible 100 dollar loss feels heavier than the larger possible gain. That same instinct keeps cash on the sidelines for fear of a dip.
03What this is NOT
It is not the same as sensible caution. Risk aversion is disliking uncertainty generally. Loss aversion is specifically weighting a loss more than an equal gain, which can make someone reject bets that are favorable on average, not just risky ones.
04Receipts
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