What is loss aversion example?

Loss aversion occurs when the challenge of a perceived or realized financial loss eclipses the joy someone might experience from a financial gain of an equal amount. For example, a person might experience more extreme emotions at the idea of losing $500 than they do at the idea of gaining $500. Related: What Is Investment Management?

Do you have a loss aversion bias?

This behavior is at work when we make choices that include both the possibility of a loss or gain. For example, when making investment decisions we most often focus on the risks associated with the investment rather than the potential gains. The loss aversion bias is not always dreadful to have, as in many cases it is beneficial to our way of life.

Is loss aversion a fallacy?

A recent study claims a core idea in behavioural economics – loss aversion – is a fallacy. Loss aversion is the theory that the pain of losing something is greater than the pleasure we feel by gaining something equivalent. Loss aversion forms the basis of a lot of behavioural economics, including analysis on The Conversation.

Do you fall into a loss aversion trap?

That kind of pre-commitment to always limiting your risk helps to mitigate the tendency to fall into a loss aversion trap. Below is a list of loss aversion examples that investors often fall into: Investing in low-return, guaranteed investments over more promising investments that carry higher risk