bias library
Loss aversion
A loss of $100 hurts roughly twice as much as a gain of $100 feels good.
Kahneman and Tversky measured it in 1979 and called the coefficient roughly 2.25. Two-to-one. Most retail traders carry this multiplier without realising it — and it warps every decision once a position is open.
What it looks like in crypto
- ●You hold a coin down 40% because closing it would "make the loss real". Holding feels neutral; selling feels painful. The pain bias keeps the bag.
- ●You stop checking your portfolio in red weeks. Behavioural finance calls this the ostrich effect — a direct child of loss aversion. The position keeps bleeding; you keep not looking.
- ●After a drawdown, your next entries are tiny. Risk feels much heavier than reward, so you under-size. You then miss the recovery.
- ●You set a mental stop but never write it down. When the price hits, you "give it room". The pain of executing the stop overrides the rule.
Counter-moves
- Write your stop level in plain text BEFORE entry. Keep it in a note you re-read once a week.
- Set a price alert at your stop. Force yourself to look. Decisions made by surprise are decisions made by emotion.
- Treat every open position as if it belonged to someone else. Would you advise them to hold at today's price?
- Schedule a monthly review where you look at every position, in green or red. The avoidance ritual is what compounds the damage.
Worth knowing
Loss aversion is not a flaw to fix — it's a setting you can compensate for. The traders who outperform have not eliminated it; they have built rules that fire before emotion does.
Academic foundation
Kahneman & Tversky (1979). Prospect Theory: An Analysis of Decision Under Risk. Econometrica, 47(2), 263–291.
Related biases
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