The principle that losses loom psychologically larger than equivalent gains, with losing something feeling roughly twice as bad as gaining the same thing feels good.
Loss aversion is distinct from risk aversion—it's about the asymmetric psychological impact of losses versus gains of equal magnitude. This asymmetry explains the endowment effect (valuing things more once you own them, because selling feels like a loss), status quo bias (preferring current states because change involves giving up what you have), and the disposition effect in investing (holding losing stocks too long because selling realizes the loss). The reference point matters enormously: whether something is framed as a gain or loss depends on where you start, and shifting the reference point changes preferences.
Most people reject a 50-50 gamble to win $150 or lose $100, even though the expected value is positive ($25), because the potential loss weighs more heavily than the potential gain. The pain of losing $100 is roughly twice the pleasure of gaining $100.
Loss aversion is the same as risk aversion—actually, loss aversion is about the asymmetry between losses and gains, while risk aversion is about preferring certainty to gambles.
In loss aversion, approximately how much more does losing something hurt compared to the pleasure of gaining the same thing?
True or False: Loss aversion and risk aversion are the same phenomenon—both describe people's preference for avoiding losses.
How does loss aversion explain why identity-based habits (from Atomic Habits) are more durable than outcome-based habits?
The slow, deliberate, effortful mode of thinking that allocates attention to complex computations, self-control, and conscious reasoning.
Mental ModelThe fast, automatic, intuitive mode of thinking that operates effortlessly and generates impressions, intuitions, and feelings without conscious control.
Mental ModelJudging the frequency or probability of events by how easily examples come to mind, leading to overestimation of vivid or recent events.
Mental ModelJudging probability by how much something resembles a typical case while ignoring base rates, sample size, and statistical principles.
Mental ModelThe tendency to rely too heavily on an initial piece of information (the anchor) when making subsequent judgments, even when the anchor is arbitrary or irrelevant.
Mental ModelA descriptive model of decision-making under risk showing that people evaluate outcomes relative to a reference point, are loss-averse, and weight probabilities non-linearly.
FrameworkSystem 1's tendency to construct the most coherent story possible from currently available information without considering what's missing or questions not asked.
PrincipleThe systematic tendency to underestimate how long tasks will take, how much they'll cost, and what risks they face, due to focusing on the specific plan rather than similar projects.
PrincipleThe principle that losses loom psychologically larger than equivalent gains, with losing something feeling roughly twice as bad as gaining the same thing feels good.
Most people reject a 50-50 gamble to win $150 or lose $100, even though the expected value is positive ($25), because the potential loss weighs more heavily than the potential gain. The pain of losing $100 is roughly twice the pleasure of gaining $100.
Loss aversion is the same as risk aversion—actually, loss aversion is about the asymmetry between losses and gains, while risk aversion is about preferring certainty to gambles.
Loss Aversion is explored in depth in "Thinking, Fast and Slow" by Daniel Kahneman. Distilo provides a deep AI-powered analysis with key insights, audio narration, and practical frameworks.