Loss aversion causes investors to avoid taking necessary risks from "summary" of Beyond Greed and Fear:Understanding Behavioral Finance and the Psychology of Investing by Hersh Shefrin
Loss aversion, a key concept in behavioral finance, refers to the tendency for individuals to experience a stronger negative emotional response to losses compared to the positive emotional response to equivalent gains. This psychological bias has significant implications for investors, as it can lead them to make decisions that are not always in their best financial interest. When investors are faced with the possibility of incurring a loss, they often become more risk-averse and are reluctant to take on additional risks, even if those risks are necessary for achieving their investment goals. This aversion to losses can prevent investors from making strategic decisions that could potentially lead to higher returns in the long run. In many cases, investors may avoid ta...
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