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What is loss aversion?

PsychologyLesson on requestFree to read

Quick answer

Loss aversion is the tendency to feel the pain of a loss more strongly than the pleasure of an equal gain. Losing $100 hurts more than gaining $100 feels good — which powerfully shapes how people make decisions about risk and money.

Key things to understand

  1. Losses feel worse than equal gains feel good.
  2. It makes people overly cautious to avoid losing.
  3. It strongly influences financial and risk decisions.
  4. It's a core idea in behavioral economics.

People also ask

What is loss aversion?
The tendency to feel losses more intensely than equivalent gains, so we work harder to avoid losing.
Why does loss aversion matter?
It explains why people avoid risk, hold losing investments too long, and react strongly to potential losses.
Who discovered loss aversion?
Psychologists Daniel Kahneman and Amos Tversky, as part of their work on prospect theory.