Loss aversion: Psychological hurdles when investing

April 04, 2025

Loss aversion describes the phenomenon that losses have a stronger emotional impact than equally high gains. This cognitive bias leads people to act in a risk-averse manner and avoid potentially favourable decisions just to prevent possible losses. Especially in investment decisions, loss aversion can lead to overly cautious behaviour or holding on to loss-making investments. Understanding this effect is crucial to making rational and successful long-term decisions.