Overcome the fear of loss
Money Magazine Australia|May 2022
Risk aversion results in poor decision-making and lost opportunities
Phil Slade
Overcome the fear of loss

Why do we undervalue opportunity? The answer is simple. What we can do about it, however, is a little more complex. We undervalue opportunity because our basic survival instinct is biased toward avoiding negative outcomes.

In the early 1970s, two psychologists, Daniel Kahneman and Amos Tversky observed something peculiar while investigating people's gambling behaviour. They were interested in gambling because it seemed to fly in the face of the popular economic theory that we are all rational actors doing things primarily to advance our own self-interest.

What they found is that we tend to only take a gamble when the reward on offer is at least twice as large as the potential loss. People will risk $50 on the toss of a coin if the potential win is at least $100. Essentially, this is because the pain of a loss is felt much more acutely than the pleasure derived from a gain. So, if the coin toss was simply to either win or lose $50, then we would decline to take part in order to avoid the loss. This is loss aversion.

Esta historia es de la edición May 2022 de Money Magazine Australia.

Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 9,000 revistas y periódicos.

Esta historia es de la edición May 2022 de Money Magazine Australia.

Comience su prueba gratuita de Magzter GOLD de 7 días para acceder a miles de historias premium seleccionadas y a más de 9,000 revistas y periódicos.

MÁS HISTORIAS DE MONEY MAGAZINE AUSTRALIAVer todo
An outrageous, beautiful monopoly
Money Magazine Australia

An outrageous, beautiful monopoly

Telstra's mobile business is a cash machine with few competitors, giving it the highest returns in the world.

time-read
4 minutos  |
July 2024
Drop the anchor to judge value
Money Magazine Australia

Drop the anchor to judge value

Buying and selling decisions should be based on where a stock price is going, not where it has been.

time-read
3 minutos  |
July 2024
Powering the AI boom
Money Magazine Australia

Powering the AI boom

Beyond the software and chipmakers, where will the energy come from?

time-read
3 minutos  |
July 2024
Get into life
Money Magazine Australia

Get into life

Tucked inside super are products that can protect you from life's inevitable uncertainties.

time-read
5 minutos  |
July 2024
Paths to home ownership
Money Magazine Australia

Paths to home ownership

Taking the road less travelled can sometimes deliver unexpected benefits.

time-read
5 minutos  |
July 2024
Sold! Quick ways to add value
Money Magazine Australia

Sold! Quick ways to add value

Small, strategic changes can have a big impact on the look and feel of your home. And get you a better price on auction day.

time-read
5 minutos  |
July 2024
Money lessons the kids need to know
Money Magazine Australia

Money lessons the kids need to know

Your children can learn a lot from your past money mishaps. Here are eight financial conversations I have had with mine.

time-read
4 minutos  |
July 2024
Property-investing rules: are they likely to change?
Money Magazine Australia

Property-investing rules: are they likely to change?

The pressure for the government to curb the tax benefits of tax concessions, such as negative gearing and the capital gains tax discount, is unrelenting. Most recently, independent senators David Pocock and Jacqui Lambie proposed five options for paring back investment property tax concessions, with savings to the Federal budget of up to $60 billion over the next decade.

time-read
3 minutos  |
July 2024
What's love got to do with it?
Money Magazine Australia

What's love got to do with it?

A rollercoaster of emotions could be driving poor crypto behaviour.

time-read
3 minutos  |
July 2024
Are we ready to be cash-free?
Money Magazine Australia

Are we ready to be cash-free?

Saying goodbye to our piggy banks too soon could leave small businesses in the dark when problems arise.

time-read
2 minutos  |
July 2024