Loss Aversion

Loss aversion is the tendency for people to strongly (usually two times as strong) prefer avoiding losses as opposed to achieving gains. This article demonstrates that a person would rather make $50,000 a year while those around him or her made $25,000, as opposed to making $100,000 a year while others made $250,000. Most people would rather “pay” $50,000 to be the one with the highest salary and not have the feeling of a loss. People would rather receive less money in a winning situation than to receive more money in a losing situation. Rationally, this does not make sense. However, psychological factors definitely come into play with salary, the stock market, and many other things in the business world.

1 comment:

Dr. Tufte said...

This is a repeat post.

It's preferable to scroll back a few days and comment on the earlier one.