Loss aversion is a key concept in behavioral finance from "summary" of Advances in Behavioral Finance by Richard H. Thaler
Loss aversion, a central concept in behavioral finance, refers to the idea that individuals feel the pain of losses more intensely than the pleasure of equivalent gains. This phenomenon has profound implications for financial decision-making, as it suggests that people are inherently biased towards avoiding losses rather than seeking out gains. This aversion to losses can lead to irrational behavior, such as holding on to losing investments in the hope that they will eventually turn around, even when it would be more rational to cut one's losses and move on. One of the key insights of loss aversion is that it can lead to a reluctance to take risks, as individuals are more concerned with avoiding losses than with maximizing gains. This can result in suboptimal investment decisions, as...
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