Trap -5:Loss Aversion

We weigh negatives twice as heavily as positives. This is similar to loss aversion: We prefer avoiding losses than acquiring equivalent gains.

Loss aversion focuses narrowly on losses and gains, however, while subjective magnitude broadly considers positive and negative events.

Loss aversion refers to our tendency to strongly prefer avoiding losses over acquiring gains.

Loss aversion reveals that losses impact us approximately twice as strongly as equivalent gains. This asymmetry:

• Makes us reject favorable gambles with positive expected values
• Creates the endowment effect where we overvalue what we already possess
• Expl...