Let our awareness not only prevent us from making irrational decisions but also help us to achieve more. Loss aversion refers to our tendency to strongly prefer avoiding losses over acquiring gains. See how the following examples of loss aversion can be a detriment or benefit to you:1. Relaxing and slacking off after achieving an easy goal.10. Therefore, to avoid experiencing the pain of a “real” loss, they will continue to hold onto an investment even as their losses from it increase. Inability to agree to a new contract due to having to make concessions in reference to an obsolete contract, even if the new deal benefits both 6. Selling a stock because it is greater than the price you paid just to lock in the profits.4. The negative effect o… This is because they can avoid psychologically or emotionally facing the fact of their loss as long as they haven’t yet closed out the trade. If we have nothing but gain £20, we will be very happy. Knowing that this bias exists and how it affects our decision making is our ultimate goal. I’ve been reading your site for a long time now and finally got the courage toScore one for Hotwire! This behavior is at work when we make choices that include both the possibility of a loss or gain. Naturally responding more powerfully to threats than to opportunities is a clear example of our innate survival instinct. Selling to avoid further losses when the reasoning for the investment says to buy more.15. Selling winning investments instead of losing investments for the sole reason of not accepting defeat.14.

Working harder and accomplishing more in an attempt to achieve a stretch goal.8.

2. Loss aversion refers to our tendency to strongly prefer avoiding losses over acquiring gains. The results of the experiment showed that on average people needed to gain about twice (1.5x – 2.5x) as much as they were willing to lose in order to proceed forward with the bet (meaning the potential gain must have been at least twice as much as the potential loss).If we are not aware and do not account for the bias towards loss it can push us away from Loss aversion derives from our innate motive to prefer avoiding losses rather than achieving similar gains.

The unwillingness to sell your house for less money than you paid for it.7. See how the following examples of loss aversion can be a detriment or benefit to you:1.

Visiting your financial advisor with a goal of building wealth and walking out with a life insurance policy.11. Selling a stock because it is greater than the … I thought I was getting a deal and then they added on a 27.5% tax and fee. If the coin came up tails the person would lose $100, and if it came up heads they would win $200. Not accepting a deal below your baseline, not because the deal was poor, but because you could not bear the concession.5. The experiment involved asking people if they would accept a bet based on the flip of a coin. Focusing on one investment that has lost money while ignoring the other investments.12. Visiting your financial advisor with a goal of building wealth and walking out with a life insurance policy.11. We cannot eliminate loss aversion, but we can be aware of it. A benefit of loss aversion within the financial realm is its ability to help us shy away from investments that are potentially ruinous to our financial health and lifestyle.Behavioral science experts Amos Tversky and Daniel Kahneman performed an experiment which resulted in a clear example of human bias towards losses. If the coin came up tails the person would lose $100, and if it came up heads they would win $200. Investing solely in safe products that have little to no interest and as time passes inflation reduces/eliminates your purchasing power. Naturally responding more powerfully to threats than to opportunities is a clear example of our innate survival instinct. Not selling a stock that is below the price you paid strictly because you do not want to take a loss.3. This behavior is at work when we make choices that include both the possibility of a loss or gain. This shows that a £100 gain is less than the £100 loss. Prospect theory also states the importance of how the situation changes from our current reference point. Let our awareness not only prevent us from making irrational decisions but also help us to achieve more. 3. Not accepting a deal below your baseline, not because the deal was poor, but because you could not bear the concession.5.

The goal-setting platform created by behavioral economists at Yale University and draws on the principle of loss aversion. A benefit of loss aversion within the financial realm is its ability to help us shy away from investments that are potentially ruinous to our financial health and lifestyle.Behavioral science experts Amos Tversky and Daniel Kahneman performed an experiment which resulted in a clear example of human bias towards losses. Loss aversion refers to our tendency to strongly prefer avoiding losses over acquiring gains.