Behaviour
Loss aversion
The tendency to feel a loss roughly twice as intensely as an equivalent gain.
How it works
Losing $1,000 hurts about twice as much as gaining $1,000 pleases. This asymmetry, documented repeatedly, drives a large share of investing mistakes.
It explains why people sell after falls to stop the pain, hold losers rather than realise them, and check portfolios more often in declines — which makes the discomfort worse.
Where it misleads people
Checking a portfolio more frequently increases the number of losses you observe, because short periods are close to coin flips. The same portfolio feels far riskier when watched daily than yearly.
Related terms
- Disposition effectSelling winners too early and holding losers too long.
- Myopic loss aversionTaking too little risk because you evaluate a long-term portfolio over short periods.
- Behaviour gapThe difference between what a fund returned and what its investors actually earned in it.
- Risk toleranceHow much decline you can live through without changing your plan.
More in Behaviour
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.