Risk & LossHigh Impact
Loss Aversion
Definition
Loss Aversion is the psychological tendency to feel the pain of a loss twice as strongly as the pleasure of an equivalent gain.
Real-world examples
People are much more motivated to avoid a $50 surcharge or penalty than they are to obtain a $50 discount or reward.
- Investors often hold a losing stock far too long, unwilling to 'lock in' a loss, while selling winners too early.
- A '30-day money-back guarantee' works partly because once people own something, giving it up feels like a loss.
How to design for it (nudge strategy)
Reframe promotional incentives from 'Gain $100 by signing up' to 'Stop losing $100 every month you wait'. Use trial periods where users 'own' the service before purchasing.
The evidence (1)
- Overcoming Saving Inertia with Future Commitments
Finance · Average Retirement Saving Rate: 3.5% → 13.6% (+10.1 pts) · n = 3 companies, 1,200 employees
Key research
- Prospect Theory: An Analysis of Decision under RiskDaniel Kahneman, Amos Tversky · Econometrica (1979)
Related biases
Cite this page
Behavioral Economics Lab. "Loss Aversion – Definition, Examples & Evidence." Behavioral Economics Lab, https://behavioraleconomicslab.com/biases/loss-aversion.