What is Loss Aversion and how can it affect your clients’ investment decision-making?

What is Loss Aversion and how can it affect your clients’ investment decision-making?

What is Loss Aversion and how can it affect your clients’ investment decision-making? 2000 1600 Wi-Ai.net

Loss Aversion is a common bias experienced by investors.

It’s a cognitive bias that clients can experience whereby they feel the pain of a potential loss far more keenly than the benefit of a potential gain.

In other words, Loss Aversion leads us to feel much more strongly about the possibility of losing £1000 than we do about the opportunity to gain £1000.

For example, when clients show signs of this bias they may be hesitant to make investment decisions, preferring to ‘stay put’ and not accept a recommendation to realign their investment decisions with the current market, because the pain of crystallising a loss would feel unbearable.

As an adviser is this something you encounter with your clients?

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