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What is Loss Aversion

Did you know that the pain of losing money is twice as strong as the joy of winning it? This is called loss aversion.
📅 29. April 2026 👁️ 6 views 📂 Risiko 🇳🇴 Les på norsk

Have you ever noticed that it hurts much more to lose a thousand kroner than it is fun to find them? In psychology, this is called loss aversion. Research shows that the pain of losing money is twice as strong as the joy of winning the exact same amount.

"Man has only one enemy to overcome, and that is fear."
— Florence Scovel Shinn

In the stock market, this fear causes us to do illogical things. When a stock plunges, many investors refuse to sell, because a sale means the loss becomes reality. They would rather hold onto the losing stock and hope for a miracle, while their money could have worked much harder in a better company.

Hard to admit mistakes

Loss aversion is closely tied to pride. Pressing the sell button with red numbers flashing on the screen is the same as admitting that you were wrong. For many, it is easier to just close their eyes and delete the trading app.

The double trap: Loss aversion also causes us to sell our winning stocks way too early! We are so afraid of losing the small profit we have gained, that we sell long before the company has reached its full potential. Cut your losses, let your winners run is the rule most beginners break.

How to fight it

Smart solutions

  • Use a mechanical stop-loss. Decide in advance when to sell (for example at a 10 percent drop).
  • Ask yourself: Would I have bought this stock today at todays price? If the answer is no, you should sell.
  • Do not check your portfolio every day. It reduces the stress of normal fluctuations.

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