Definition
- Loss aversion
- Loss aversion is focusing more on a loss than on an equal gain, so that losing a sum pains people more than gaining the same sum pleases them.
Example
Can you think of an example of loss aversion?
Lose a £10 note and find an extra £10 in your pay, and you are no worse off. Kahneman and Tversky found a loss pains people about 2.25 times as much as an equal gain pleases them, so most feel worse.
Test yourself
Can you name the four ways real decisions depart from the rational model?