Question

Given the choice between avoiding a loss and acquiring a gain, people strongly choose to

a) acquire a gain
b) avoid a loss

Answer 1

People generally prefer to avoid a loss over acquiring a gain due to loss aversion, where the pain of losing is felt more strongly than the pleasure of gaining.

Step-by-step explanation:

When given the choice between avoiding a loss and acquiring a gain, people are generally more inclined to avoid a loss. This behavior is explained by the concept of loss aversion, which is a psychological phenomenon where the discomfort of losing is typically more potent than the pleasure of gaining. Behavioral economists Daniel Kahneman and Amos Tversky highlighted this in their 1979 article in the journal Econometrica, where they suggest that a $1 loss causes more pain, approximately 2.25 times greater, than the happiness generated from a $1 gain. This principle of loss aversion has important implications for areas such as investing, where individuals often react more strongly to financial losses than to equivalent gains.