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In cognitive science and behavioral economics, loss aversion refers to a cognitive bias in which the same situation is perceived as worse if it is framed as a loss, rather than a gain. [ 1 ] [ 2 ] It should not be confused with risk aversion , which describes the rational behavior of valuing an uncertain outcome at less than its expected value .
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]." This puzzle refers to the ...
Loss aversion. Loss aversion refers to the tendency to place greater weight on losses compared to equivalent gains. In other words, ... Behavioral finance [74] ...
This is what behavioral psychologists call loss aversion. Loss aversion is also what leads investors to hold on to underperforming investments longer than they’re useful, refusing to “cut ...
Begala’s case is that loss aversion can be used in non-inflation contexts to make Americans realize that the results of the 2024 election could mean losses for them in things like abortion ...
For example, individuals can try to force themselves to think of a single large gain as a number of smaller gains, to think of a number of smaller losses as a single large loss, to think of the combination of a major gain and a minor loss as a net minor gain, and, in the case of a combined major loss and minor gain, to think of the two separately.
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. [75]
Reference dependence is a central principle in prospect theory and behavioral economics generally. It holds that people evaluate outcomes and express preferences relative to an existing reference point, or status quo. It is related to loss aversion and the endowment effect. [1] [2]