What is loss aversion in Psychology?

  • A phenomenon that causes people to avoid taking risk, even though it could lead to gains that are disproportionately higher than losses.

  • Loss aversion is explained by the fact that losses cause more pain to people than an equivalent amount of profits.

  • It was first proposed by Israeli-American behavioural psychologists Daniel Kahneman and Amos Tversky in 1984.

  • Loss aversion has been attributed to evolutionary reasons that cause human beings to value goods that they already possess more highly than goods that they don’t yet possess. Consequently, losses lead to more pain than profits.


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