General
Loss Aversion
Also known as: Loss Sensitivity, Endowment Effect
The psychological tendency where losses feel more painful than equivalent gains feel pleasurable.
Detailed Explanation
Loss Aversion is a cognitive bias where people experience the pain of losing money about twice as intensely as the pleasure of gaining the same amount. This leads to poor investment decisions like panic selling during market downturns, holding losing investments too long, and being overly conservative with long-term investments. Understanding loss aversion helps investors build systems to override these emotional responses and maintain disciplined investment behavior.