No. 317 · Your own mind · Human Nature and Judgement
Loss Aversion
A loss hurts more than an equal gain pleases, so we pay to avoid losses.
In the Almanac
“Samuelson’s coin toss”, 1963 · “Snapchat streaks”, 2010s
Both stories in full, three ways to use it and where it misleads.
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Questions
What is Loss Aversion?
Loss Aversion is the tendency to feel losses more intensely than equal gains. Losing something can hurt roughly twice as much as gaining the same thing feels good, so we refuse favourable bets and cling to failing choices, as Paul Samuelson's colleague did with a coin toss.
How do you use Loss Aversion?
To use it, zoom out and judge risks as part of a bigger picture. Ask whether you'd choose a project fresh today, and harness the fear of losing progress to build good habits.
When does Loss Aversion matter?
Loss Aversion is one of the 31 mental models for your own mind, the situations where you ask: Is my own thinking leading me astray? Within that, it belongs to “Feelings that steer you”, alongside Deprival-Superreaction Tendency, Fear and Freudian Slip.
What is an example of Loss Aversion?
Two stories show it at work: Samuelson’s coin toss (1963) and Snapchat streaks (2010s). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Loss Aversion?
Prospect Theory, Sunk Cost Fallacy and Deprival-Superreaction Tendency. Loss Aversion itself comes from human nature and judgement.