Definition
The finding that losses tend to feel more painful than equal-sized gains feel good.
The story
Daniel Kahneman and Amos Tversky's prospect theory, work that helped win Kahneman the 2002 Nobel Prize in economics, holds that losses loom larger than gains. Later studies, including a 2024 review of 150 papers, put the effect at roughly twice. In trading, it can show up as holding a losing position too long, hoping it comes back, while selling winners too early.
Why markets watch it
Knowing about it helps explain why sticking to a stop-loss can feel so hard.
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms