Graeme Newell

Loss Aversion

Loss aversion is our brain’s pesky tendency to prefer avoiding a loss vs making equivalent gains. Simply put, winning $100 is nice, but losing $100 is catastrophic.

In our day-to-day lives, loss aversion shows up most prominently in the world of finance. People are less likely to invest in a stock if it is perceived as risky, with a chance for a loss, even though the reward potential is high. And unfortunately, loss aversion gets more powerful the larger the stakes.

For sure, none of us want to lose, but the fear of experiencing that loss keeps us from taking even well-calculated risks. Even when the odds are dramatically in our favor, the thought of a possible loss saps our courage.

How can you beat loss aversion? Ask yourself, “what’s the worst outcome if I make this move?” Oftentimes, this little step gives us a nice little manageable taste of the feelings we might experience if we lose. This makes the potential loss seem a little less scary and bolsters our courage.