The daily scenery of the lottery line is a simple manifestation of our
tendency to avoid a loss: a ticket that could land you an exponentially
inflated reward, without paying too much to get into the contest.
The thing is, we live to possess, and if we lose the things we own, the
sting of it will be greater than the gain. We’re simply wired that way. That’s
loss aversion.
It is difficult to part with the things we own. We have such a profound
sense of possessive behavior that losing something is tantamount to losing a
body part. Anything that we had called our own somehow has grown a neural link
directly connecting to our nervous and pulmonary systems. Even at the prospect
of losing something we possess, we already feel anxious, sad, and even angry.
Ironically, the more you possess things, the rate of your misery (of losing
things) becomes exponentially higher because you have more to lose than gain.
Loss aversion is an expression of fear you did not know you had—or
you’re not often aware of. If the sting of a setback and defeat have a stronger
impact on you than when you see progress, that’s loss aversion behavior at
work.
In short, we don’t want to lose. We’d rather “not lose” than
“not win”. Though this seemed to be an odd phrase, psychologists actually found
this to apply in competitive sports. By examining the facial expressions of
athletes on the podium, they deduced that bronze medalists were generally
happier than silver medalists. Bronze medalists feel they did not lose, while
Silver medalists would curse underneath because they didn’t win gold.
If you’re still on the fence on whether to believe in loss aversion, the
next time someone challenges you to small bet, you’ll soon find out that you’ll
get more upset of losing P20 than be happy you won P20. That’s because,
according to the economist who found out all about this behavioral peculiarity
(and won a Nobel Prize for it!), Daniel Kahneman, “losses hurt about twice as
much as gains make you feel good”.
Turns out, loss aversion is a dangerous thing to behold, especially when
it comes to money and investments. It will stop you from getting better offers
and greater opportunities.  Here are some
examples:
When we shirk from the idea of buying insurance because we feel we’re
paying something that is not tangible. Generally, we want to buy something that
we can hold in hands and feel that we own it.
When we purchase things that have little or no interest that will make
us feel we own them.
When we buy a share and not sell
it below the price either because you have sentimental attachment to it, or you
simple don’t want to take a loss.
When you don’t want to sell a
house or a car at a value that is less than you paid for it, even is said property
has become a liability to you.
When you don’t want to change the
status quo because you don’t want to lose your comfort zone.
When you approach a financial
planner with the goal of building wealth and end up simply buying life
insurance.
And so on and so forth.
Now, do you get the picture?