Loss Aversion

What Is Loss Aversion?

Loss aversion is a type of cognitive bias with well-documented emotions that traders feel, which can ultimately impact how they trade. Loss aversion is a specific cognitive bias indicating that traders feel worse from their losses than pleasure from their gains. This type of behavioural finance is so impactful that the US Securities Exchange Commission (SEC) has dedicated staff members to it.

Key Takeaway

Loss aversion is a cognitive bias where traders feel worse from losses than good from gains, even though the losses and gains are of the same amount.

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