[[Start here]] → [[What works in stocks?|what works]] → [[manage the monkey mind|Mindset]] → loss aversion --- Daniel Kahneman and Amos Tversky extensively studied human behaviour towards differently framed opportunities in their famed “Prospect Theory”.[^1] What they found is that we have a tendency to be risk-seeking in our approach to holding losers, but risk-averse when it comes to holding winners. They found that we feel pain of losses more than twice as much as the joy of gains. The chart below is a handy illustration of this effect. ![[painloss.png]] Psychologically, we don’t believe we’ve taken a loss until we’ve sold a share, so we avoid selling as we think “_it might come back_”, but we tend to sell gains too quickly, as we say to ourselves “we might lose our profit”******. So we snatch at gains, and hold losers. This is the completely opposite behaviour to the age-old winning investment maxim to Run Winners and Cut Losers. If you don’t fight the tendency to hold onto losers, and fight the tendency to sell winners, making any money in the stock market is an uphill battle. Just remember, our psychology is not well adapted to this behaviour, so we have to force ourselves to learn this habit through practice. [^1]: [[Kahneman - Thinking Fast & Slow]]