Fear of Losing Money Leads to Very Bad Decisions
How to overcome "loss aversion"
“I hate to lose more than I like to win.”
-Larry Bird
Welcome to another installment in my ongoing series called “Money On My Mind,” where I publish articles to help you deal with the psychological aspects of managing money. Check out past editions of the series here.
We continue our exploration of cognitive biases by looking at loss aversion.
Continue reading to learn:
What loss aversion is
How it prevents you from taking financial risks
The unexpected ways loss aversion can destroy an investment portfolio
How to overcome loss aversion and embrace a healthy view of financial risk
What is loss aversion?
Loss aversion is the term used to describe the fact that most people hate to lose more than they love to win. This is especially true when it comes to money. If you were given a $100 speeding ticket, it would probably ruin your day, even if you could easily afford it. On the flip side, if your boss told you they were giving you a $100 bonus, I doubt you’d be jumping for joy.
That’s loss aversion.