Loss aversion

Loss aversion is when losses feel about twice as bad as equivalent gains feel good. We are more motivated to avoid losing what we have than to acquire something new. That can make us overly cautious, cling to the status quo, or take poor risks to avoid realizing a loss.

Examples

• You refuse to sell a stock that has fallen, hoping it will recover, because realizing the loss feels worse than the chance of a future gain feels good.

• You keep a subscription you rarely use because cancelling feels like a loss, even though the money saved would be a gain.

• A homeowner rejects a fair offer for their house because it is below the price they once paid, and they focus on "losing" that value rather than on what they can do with the money.

• You hold on to clothes or gadgets you never use because getting rid of them feels like a loss, even though they have no real use.