What Is Loss Aversion?

Loss aversion means that when people face the same amount of gains and losses, they think the losses are more unbearable. The negative utility caused by the same amount of loss is 2.5 times the positive utility of the same amount of gain. Loss aversion reflects that people's risk appetite is not consistent. When it comes to gains, people show risk aversion; when it comes to losses, people show risk seeking.

Loss aversion

For example, experiments have shown that many people would rather choose to win 3,000 yuan without risk (that is, a 100% chance) rather than choosing to gamble with an 80% chance of winning 4,000 yuan. ^[1]

Loss aversion is KahnemanandTversky

: Different value performances due to losses and gains

Value performance

When the profit reaches a certain level and upwards, the positive value brought to people is quite limited. For example, if you invest 100 yuan and start earning 10 yuan, it feels good, but you earn 50 yuan and 60 yuan Not much difference. Losses are different. As the amount of losses expands, the negative value brought to people continues to rise, and it does not decrease as the gain is increased, the more negative the greater the negative value.