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What is Loss Aversion Bias: Easy Explanation [Video]

What is Loss Aversion Bias: Easy Explanation

In this video, you will learn about loss aversion bias and how you can avoid it.

#lossaversionbias #lossaversion #wallstreetmojo #bias #behavioralfinance

Chapters:
00:00 – Introduction
00:30 – What is loss aversion bias?
01:38 – Why is understanding loss aversion important?
02:29 – Myopic loss aversion
03:00 – How to avoid loss aversion?
05:02 – Conclusion

What is loss aversion bias?
Loss aversion bias is a cognitive phenomenon in which a person is affected more by the loss than the gain.

The concept of loss aversion is an integral part of behavioral finance, and it’s very much applicable in trading and investing.

It happens because the fear of losing money is greater than the joy of making money, instantly making one averse to the loss.

Why is understanding loss aversion important?
Whenever we buy or sell anything, we often try to do it logically right. But once this concept of loss aversion comes in, we need to question how logical and rational our decisions were.

That will be possible only if you know about these biases that can cloud your judgment in the first place.

Myopic loss aversion
Myopic loss aversion is another bias in which people lose sight of the big picture due to any big event. This mostly happens with people in investing and trading.

How to avoid loss aversion?
The loss aversion bias is subconsciously ingrained in our minds that we always try to averse losses no matter what decisions we try to make.

Entirely avoiding losses is not possible. But we sure can try and reduce its effects.

Give equal importance to winning as losing, and secondly, know when to quit and for what reasons to quit. Get these two things right, and you’ll save yourself from the loss aversion bias to a great extent.

This was all about the loss aversion bias. So don’t forget to give this video a like and also subscribe to the channel so that you don’t miss out on our videos.

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