Stocks

The fact that people generally dislike losing more than they like gaining has a profound impact on the stock market.  At the end of a week, investors are more likely to sell stocks that have increased in value, or at least have gone down the least, because they don’t want to lose the money of the stocks that have failed them.  This means that people hold on to their depreciating stocks longer, putting off having to take the loss and hoping it will rise. This leads to more loss of money in the long run.  Even professional money managers hold on to losing stocks twice as long as those that are winning.  Also added into this is the “Risk” post; people are more likely to take risks on losing money than on gaining money.  So they’ll sell stocks that they know they’ll earn money on, but hold on to stocks that they’re losing money on because they’re more willing to accept the risk in case the stock goes back up.

http://us.beyondbullsandbears.com/2012/10/11/loss-aversion/

Lehrer, Jonah. "Loss Aversion and the Stock Market." The Frontal Cortex. Science Blogs, 30 Sept. 2008. Web. 17 Dec. 2012.

"When Averting Loss Can Lead to Averting Gains." Beyond Bulls Bears. Franklin Templeton Investments, 2012. Web. 17 Dec. 2012.