Question

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as:

1) Loss aversion
2) Risk aversion
3) Confirmation bias
4) Anchoring bias

Answer 1

Loss aversion is the tendency to experience losses as more painful than gains of the same magnitude. This cognitive bias has implications for investing(option 1).

Step-by-step explanation:

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as 1)Loss aversion.

According to economists Daniel Kahneman and Amos Tversky in their famous 1979 article in the journal Econometrica, loss aversion means that a $1 loss pains us 2.25 times more than a $1 gain helps us. This cognitive bias has implications for investing, as people tend to react more strongly to losses than to gains in the stock market.