Loss aversion is a common bias mentioned as a factor that hurts the average investor’s ability to outperform the market. This bias leads to holding on to losers longer than appropriate, throwing more money into a bad investment, and selling your winners too early. This bias applies in other investment decisions as well as in every day life.
How willing you would be to sell your house for a lower price than you paid for it even though market conditions dictate that the house price is now lower than when you purchased the house?
Maybe you chose not to pay the lawn person to cut your grass to save some money and slaved away your Saturday on a hot sunny day to cut the grass.
Have you ever seen someone avoid looking for a better job because they are waiting for their year end bonus or a severance package?
Maybe a smooth talking salesperson has sold you on a once in a lifetime deal that you will miss out if you don’t sign the contract immediately.
Have you held on to negative relationships because of loss aversion?
Take a step back and weigh the possible outcomes for your decisions and their expected values to overcome the loss aversion bias. Hopefully this thinking leads to better decisions and better outcomes.