Economics Loss Aversion Questions
Loss aversion impacts financial decision-making by causing individuals to place a higher value on avoiding losses compared to acquiring gains of the same magnitude. This bias leads individuals to make irrational decisions, such as holding onto losing investments for longer periods or taking excessive risks to avoid losses. Loss aversion can also result in individuals being less willing to take on new opportunities or make necessary changes due to the fear of potential losses. Overall, loss aversion can hinder rational decision-making and lead to suboptimal financial outcomes.