Loss aversion bias is a psychological phenomenon where the pain of losing money feels much stronger than the joy of gaining the same amount. This bias causes investors to make emotional, irrational decisions.
1. Losses Hurt More Than Gains
Losing ₹1,000 feels worse than the happiness of earning ₹1,000. This emotional imbalance drives poor investment behavior.
2. Holding Losing Stocks Too Long
Investors often refuse to sell a losing stock because selling means admitting a mistake.
3. Missing New Opportunities
Money remains stuck in weak stocks while great opportunities are ignored due to fear created by earlier losses.
4. Emotional Decisions Over Rational Ones
Fear of loss leads to panic selling, hesitation, and holding bad decisions for too long.
Understanding loss aversion helps investors make better decisions and avoid emotionally driven mistakes. Success in investing is not about avoiding losses, but knowing how to manage them wisely.