"Loss aversion is a psychological and economic concept which refers to how outcomes are interpreted as gains and losses where losses are subject to more sensitivity in people's responses compared to equivalent gains acquired."
People are more sensitive to losses than gains, and typically need higher gains to offset potential losses.
Loss aversion definition: The basic definition of loss aversion, which refers to the idea that people tend to experience greater pain or dissatisfaction from losing something than they do pleasure or satisfaction from gaining something else.
Prospect theory: A well-known theory in behavioral economics that seeks to explain how people make decisions under conditions of uncertainty, including how they weigh gains and losses.
Framing effects: The idea that the way in which a decision or problem is presented to people can influence their choices and preferences, including their tendency to be loss averse.
Endowment effect: This refers to the tendency for people to value something more highly once they own it, creating a sense of loss or frustration when it is taken away or lost.
Sunk cost fallacy: The idea that people tend to continue investing resources into a project or situation because they have already invested so much, even if it would have been more rational to cut their losses and move on.
Mental accounting: The concept that people tend to judge financial outcomes according to separate accounts in their mind, leading them to be more loss averse in some situations than in others.
Regret theory: The idea that people are more likely to regret taking an action that leads to a loss than they are not taking an action that could have led to a gain.
Neuroeconomics: The study of how the brain processes economic decision-making, including the role of emotions and cognitive biases in loss aversion.
Behavioral finance: A sub-field of economics that examines the psychological and social factors that influence financial decisions, including loss aversion.
Heuristics: Mental shortcuts that people use to make decisions when faced with complex problems or limited information, often influenced by loss aversion biases.
Endowment effect: This is a type of loss aversion wherein people tend to overvalue something they already own, such as a house or a car, and may reject offers that would result in a loss.
Sunk cost fallacy: This type of loss aversion refers to the tendency of people to continue investing in a project or situation even if it is no longer rational to do so because they have already invested a significant amount of time or money in it.
Status quo bias: This is a type of loss aversion where people tend to stick to the current state of affairs and resist change, even when that change may be beneficial.
Negativity bias: This refers to the tendency of people to focus more on negative experiences than positive ones, resulting in a stronger sensitivity to losses.
Zero-risk bias: This is a type of loss aversion wherein people prefer to take actions that have no risk or uncertainty, even if that means missing out on potential gains.
Reference point bias: People tend to see any change from a reference point as a loss rather than gain.
Anchoring bias: This refers to the tendency of people to rely too much on the first piece of information they receive when making decisions, which can lead to loss aversion if that initial information is negative.
Diminishing sensitivity: This is a type of loss aversion in which the pain of losses decreases as the magnitude of the loss increases, meaning that people are relatively insensitive to large losses.
Prospect Theory: Prospect theory is a behavioral model that describes how people make decisions between alternatives that involve uncertain events. The theory suggests that people are more sensitive to losses than they are to gains, hence loss aversion.
"Loss aversion was first proposed by Amos Tversky and Daniel Kahneman as an important framework for Prospect Theory - an analysis of decision under risk."
"Kahneman and Tversky (1992) have suggested that losses can be twice as powerful, psychologically, as gains."
"When defined in terms of the utility function shape as in the Cumulative Prospect Theory (CPT), losses have a steeper utility than gains."
"Losses are subject to more sensitivity in people's responses compared to equivalent gains acquired."
"Finance and insurance are the sub-fields of economics with the most active applications."
"Kahneman and Tversky (1992) have suggested..."
"Loss aversion was first proposed by Amos Tversky and Daniel Kahneman as an important framework for Prospect Theory - an analysis of decision under risk."
"Losses have a steeper utility than gains, thus being more 'painful' than the satisfaction from a comparable gain."
"Outcomes are interpreted as gains and losses where losses are subject to more sensitivity in people's responses."
"Loss aversion is a psychological and economic concept."
"Loss aversion was first proposed by Amos Tversky and Daniel Kahneman as an important framework for Prospect Theory - an analysis of decision under risk."
"Losses can be twice as powerful, psychologically, as gains."
"Finance and insurance are the sub-fields of economics with the most active applications."
"Losses have a steeper utility than gains."
"Losses have a steeper utility than gains, thus being more 'painful' than the satisfaction from a comparable gain."
"Loss aversion was first proposed by Amos Tversky and Daniel Kahneman as an important framework for Prospect Theory."
"Kahneman and Tversky (1992) have suggested that losses can be twice as powerful, psychologically, as gains."
"Finance and insurance are the sub-fields of economics with the most active applications."
"The main concept studied in loss aversion is how outcomes are interpreted as gains and losses where losses are subject to more sensitivity in people's responses compared to equivalent gains acquired."