Loss aversion is a cognitive bias that describes how individuals tend to feel the pain of losses more strongly than the pleasure of gains. This phenomenon is observed across various domains, including financial decision-making, gambling, and consumer behavior. Loss aversion is often attributed to the evolutionary principle that avoiding losses is more critical to survival than acquiring gains. Research has shown that loss aversion can lead to irrational decision-making, such as holding onto losing investments for longer than necessary or refusing to sell a losing stock. This bias can also lead to risk aversion, as individuals may be more willing to forego potential gains to avoid potential losses. However, loss aversion can also have positive effects. For instance, it can motivate individuals to take actions to prevent losses, such as purchasing insurance or diversifying investments. Additionally, loss aversion can lead to a greater appreciation for what one already has, as individuals may be more likely to hold onto possessions or relationships that they perceive as valuable. Overall, loss aversion is a complex phenomenon that can have both positive and negative effects on decision-making. By understanding this bias, individuals can better evaluate their own decision-making processes and work to mitigate its negative effects.
cognitive bias, decision-making, risk aversion, evolutionary principle, irrational decision-making
CITATION : "Timothy Anderson. 'Loss Aversion.' Design+Encyclopedia. https://design-encyclopedia.com/?E=354255 (Accessed on August 02, 2025)"
Loss Aversion is a cognitive bias in which individuals strongly prefer avoiding losses over acquiring equivalent gains. It is the concept that people are more motivated to avoid losses than to pursue gains; and that often people will take greater risks in order to avoid a potential loss than they will to realize a potential gain. This is because people tend to feel the pain of losses more strongly than the pleasure of gains. For example, the potential loss of a job may cause more distress than the potential gain of a new job. Loss Aversion is a type of logical fallacy because it is a cognitive bias that affects a person's ability to make decisions in a logical manner.
Loss Aversion, Cognitive Biases, Logical Fallacies, Behavioral Economics.
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