Loss aversion is the well-documented tendency to feel the pain of a loss more strongly than the pleasure of an equal gain. Losing $100 hurts more than finding $100 feels good. The idea comes from Kahneman and Tversky's prospect theory (1979), often summarized as losses looming roughly twice as large as equivalent gains.
Because a loss feels so bad, investors go to great lengths to avoid realizing one. The classic result is the disposition effect: holding a losing position far too long, hoping it comes back, rather than accepting the loss and moving on. The mirror image is panic-selling at the bottom, when a paper loss becomes unbearable and you lock it in at the worst moment.
It is the tendency, documented in Kahneman and Tversky's prospect theory (1979), to feel the pain of a loss more strongly than the pleasure of an equal-sized gain.
It makes people hold losing positions too long to avoid realizing the loss (the disposition effect), and sometimes panic-sell at the bottom when a paper loss becomes unbearable.
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Educational research only — not investment advice.