Loss Aversion

Loss aversion is the strong and pervasive tendency to weight losses more heavily than gains of a like amount. Many studies have indicated that losses are weighted at least twice as heavily as the same gain. Nassim Nicholas Taleb points to the Stoic philosopher Seneca having noted this human trait in many of his works. The may be an evolutionary trait from when humans faced many deadly threats and few situations that offered tremendous upsides. Daily survival was of utmost importance. The reverse is now true. Entrepreneurs and others that can set aside this evolutionary trait have opportunities to expose themselves to upsides much greater than downsides…so long as they avoid risks of ruin.