Economics Loss Aversion Questions
Loss aversion impacts investment portfolios by influencing investors to make irrational decisions based on their fear of losses. This bias leads investors to hold onto losing investments for longer periods, hoping for a rebound, while quickly selling winning investments to secure gains. As a result, loss aversion can lead to suboptimal portfolio performance and a failure to diversify investments effectively. Additionally, loss aversion may cause investors to avoid taking risks, resulting in missed opportunities for potential gains. Overall, loss aversion can hinder portfolio growth and limit the ability to maximize returns.