Think Better · 45 sec
Loss aversion
A compact thinking tool for spotting patterns and avoiding mistakes.
The useful idea
- The useful idea
In cognitive science and behavioral economics, loss aversion is a cognitive bias in which the same situation is perceived as worse if it is framed as a loss, rather than a gain.
- How it works
It should not be confused with risk aversion, which describes the rational behavior of valuing an uncertain outcome at less than its expected value.
- Why it matters
When defined in terms of the pseudo-utility function as in cumulative prospect theory (CPT), the left-hand of the function increases much more steeply than gains, thus being more "painful" than the
Why this matters
Use Loss aversion as a quick check before trusting your first conclusion.
Try this
Use Loss aversion as a quick check before trusting your first conclusion.
Test your recall
Which idea belongs to the explanation of Loss aversion?
- How it works
- The useful idea — correct
- Why it matters
In cognitive science and behavioral economics, loss aversion is a cognitive bias in which the same situation is perceived as worse if it is framed as a loss, rather than a gain.