Chapter 3: Loss Aversion “The concept of loss aversion is certainly the most significant contribution of psychology to behavioral economics.” – Daniel Kahneman Principle Introduction: Loss aversion is a key concept in decision-making that highlights our innate tendency to prioritize avoiding losses over acquiring gains. This principle, first identified by Daniel Kahneman and Amos Tversky, reveals that the pain associated with losing is disproportionately greater than the pleasure derived from winning. In everyday life, this can manifest in various ways, from our reluctance to sell losing stocks to our preference for insurance against potential losses. Understanding loss aversion helps illuminate the intricacies of human decision-making, shedding light on why we often make choices that prioritize safety and security over potential gains.
Erez, Dolev. The Art of Thinking in Graphs: Illustrating the 52 Principles That Shape Our Productivity, Decision-Making, and the Way We Think (p. 21). Kindle Edition.
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