Behavioral Finance
What is Loss Aversion?
Loss aversion is the well-documented behavioral finding (Kahneman & Tversky) that the psychological pain of losing money is roughly 2x more intense than the pleasure of gaining the same amount, a cognitive bias that drives most retail investing mistakes.
Formula
Pain of losing $100 ≈ pleasure of gaining $200 (asymmetric utility curve from Prospect Theory).
How to Interpret
Loss aversion explains why investors hold losers too long ('it'll come back'), sell winners too early ('lock in the gain'), check portfolios obsessively in down markets, and panic-sell at bottoms. Counter-strategies: pre-commit via auto-investing (DCA in the US, SIPs in India), set sell rules in advance, check accounts less often, and reframe losses as 'expected drawdowns' on the path to long-term returns.
Typical Ranges
N/A, universal cognitive bias. Awareness is the first defense.