Last updated: April 2026 Loss aversion is the behavioral tendency to feel the pain of a loss roughly twice as strongly as the pleasure of an equivalent gain. Daniel Kahneman and Amos Tversky quantified it in prospect theory (1979, 1992): the loss-aversion coefficient λ ≈ 2.25. It explains the disposition effect in trading, the endowment … Read more
Last updated: April 2026 Behavioral finance studies how psychological biases — loss aversion, overconfidence, herd instinct, mental accounting — systematically push investors toward irrational decisions. Founded on Daniel Kahneman and Amos Tversky’s prospect theory (1979) and expanded by Richard Thaler’s work on market anomalies, the field explains why even professionals sell winners too early, hold … Read more
Last updated: March 2026 Prospect theory, developed by Daniel Kahneman and Amos Tversky in 1979, explains why losing $100 hurts roughly twice as much as gaining $100 feels good. The theory describes three core mechanisms that drive irrational decisions: reference-dependent evaluation (gains and losses measured from a starting point, not absolute wealth), loss aversion (losses … Read more