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Loss aversion coupled with myopia has been shown to explain macroeconomic phenomena, such as the equity premium puzzle. [17] Loss aversion to kinship is an explanation for aversion to inheritance tax. [18]
Studies in behavioral finance analyzed this pattern, observing that there is a tendency to avoid high-reward options in the market, as the risk of short-term loss potentially influences the broker. Acclaimed behavioral economists Benartzi and Thaler analyzed this concept, calling it the "equity premium puzzle [ 2 ] ."
Loss aversion In other words, this means that when an individual receives a loss, this will cause their utility to decline more so than the same-sized gain. [ 67 ] This means that they are far more likely to try to assign a higher priority on avoiding losses than making investment gains.
Perhaps at least one part of the answer to the rock-bottom consumer confidence — says at least one academic — is a psychological concept known as "loss aversion." Loss aversion is a cognitive ...
Nicholas Barberis and Wei Xiong have depicted the disposition impact as the trade of individual investors are one of the most important realities. The influence, they note, has been recorded in all the broad individual investor trading activity databases available and has been linked to significant pricing phenomena such as post-earnings announcement drift and momentum at the stock level.
Loss aversion, where the perceived disutility of giving up an object is greater than the utility associated with acquiring it. [ 74 ] (see also Sunk cost fallacy ) Pseudocertainty effect , the tendency to make risk-averse choices if the expected outcome is positive, but make risk-seeking choices to avoid negative outcomes.
(I'm uncomfortable giving friends financial advice for obvious reasons). But mostly because Investors, stay in the game: Loss aversion causes big losses over long term
The correlation between the two theories is so high that the endowment effect is often seen as the presentation of loss aversion in a riskless setting. However, these claims have been disputed and other researchers claim that psychological inertia , [ 20 ] differences in reference prices relied on by buyers and sellers, [ 3 ] and ownership ...