Stock Market Glossary
Loss aversion
Behavioral economic phenomenon: Losses weigh more psychologically than equally large gains.
In brief: Behavioral economic phenomenon: Losses weigh more psychologically than equally large gains.
Meaning in practice
Loss aversion explains why investors hold losing positions longer than winners (“disposition effect”). A clear set of rules and stop-loss discipline are the most effective antidotes.
Context for investors and traders
The term describes a common behavioural bias that can become especially visible during sharp market moves. It is not a judgement on individual investors, but a prompt to make decisions understandable and repeatable.
How to use this in practice
A simple decision process is an effective countermeasure: note the trigger, set objective and risk, then act. It makes clear whether a decision rests on testable information or on FOMO, fear or the urge to recover a loss quickly.
What to keep in mind
Review decisions at calm intervals instead of after every market move. Changing rules retrospectively removes the benchmark; following them rigidly should still leave room for genuinely relevant new information.
