Loss Aversion as Risk Aversion.
In everyday life, loss aversion manifests as risk aversion.
For instance, say you have an investment opportunity whereby you have a fifty percent chance of 4X your initial investment and a fifty percent chance of losing your money. This is a reasonable risk to take, as the potential gain is considerably higher than the potential loss.
Yet neuroeconomic studies by the likes of Daniel Kahneman, Amos Tversky, Richard Thaler, and others have shown that for many humans, the potential pain of a loss overwhelms the brain's computational processes and might prevent you from making a rational investment bet.
|
