What is loss aversion?

Loss aversion is the observation that human beings experience losses asymmetrically more severely than equivalent gains. This overwhelming fear of loss can cause investors to behave irrationally and make bad decisions, such as holding onto a stock for too long or too little time.

Does loss aversion exist in small payoff magnitudes?

There are several explanations for these findings: one, is that loss aversion does not exist in small payoff magnitudes (called magnitude dependent loss aversion by Mukherjee et al. (2017); which seems to hold true for time as well. The other is that the generality of the loss aversion pattern is lower than previously thought.

Does loss aversion affect brain behavior?

Perhaps most interesting, the reactions in our subjects' brains were stronger in response to possible losses than to gains—a phenomenon we dubbed neural loss aversion. We also found that individuals displayed varying degrees of sensitivity to loss aversion, and these wide-ranging neural responses predicted differences in their behavior.

Does loss aversion affect pizza?

Consistent with loss aversion, consumers in the subtractive condition ended up with pizzas that had significantly more ingredients than those in the additive condition (Levin et al., 2002). The principle of loss aversion also applies to the emotional pain of scaling back.