Loss Aversion

The 3.4% Cost of Having an Idea The world of personal finance provides a stark, reproducible demonstration of a profoundly costly human tendency: predictable error. Research examining individual investors who held large brokerage accounts scrutinized every transaction they made over several years, focusing on days when an individual sold one stock and simultaneously purchased another. This specific behavior signals a belief that the newly purchased stock would outperform the stock being sold. Using modern technology, analysts later checked which stock—the one bought or the one sold—performed better a year later. The results were not only striking but astonishing: on average, the stock that individuals sold did better than the stock they bought. ...