AP PSYCHOLOGY

Detailed explanation-1: -Loss aversion essentially means that the pleasure we derive from gaining something is not as great as the pain we feel from losing something of equal value. In other words, gaining $5 does not feel as good as losing $5 hurts.

Detailed explanation-2: -In the field of behavioral decision-making, “loss aversion” is a behavioral phenomenon in which individuals show a higher sensitivity to potential losses than to gains. Conversely, “risk averse” individuals have an enhanced sensitivity/aversion to options with uncertain consequences.

Detailed explanation-3: -Loss aversion has been used to account for framing effects on risk preference. Specifically, people are more afraid of the potential losses derived from a risky prospect in the gain frame, which contributes to the prevalence of risk aversion in choices between probable and sure gains.

Detailed explanation-4: -Loss aversion is a cognitive bias that describes why, for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining. The loss felt from money, or any other valuable object, can feel worse than gaining that same thing.

Detailed explanation-5: -Examples of Loss Aversion Selling a stock that has gone up slightly in price just to realize a gain of any amount, when your analysis indicates that the stock should be held longer for a much larger profit. Telling oneself that an investment is not a loss until it’s realized (i.e., when the investment is sold)