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Prospect Theory: Why Losses Sting More Than Gains
The psychology behind loss aversion and risk perception
Losing $100 feels about twice as bad as gaining $100 feels good — this asymmetry drives countless irrational choices.
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Psychologists Daniel Kahneman and Amos Tversky discovered that people feel losses roughly twice as intensely as equivalent gains, overturning classical economic theory.
Their Prospect Theory (1979) explains seemingly irrational choices — like holding onto losing investments too long or refusing fair gambles.
Prospect Theory reveals that your emotional reactions to risk are predictably biased — understanding this lets you make more rational choices under uncertainty.
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