Are you scared of loss?

If you are scared then you are not the only one. There is something that is called Loss Aversion Bias that has been intensely studied in finance to understand human behavior, because earlier studies indicated that humans are rational beings that will always act in their self interest, will make the optimum decision always and always gather all the information before making any decision. But then, another scholar observed and said, but no, that doesn’t make sense, there are charity organisations that have been started by human beings, these people play lottos and they do not have the time and money to get all the information before making a decision and its hard to make be an optimum decision without all the information. So these group of scholars decided to study human investing behavior and among many other things they found out, they discovered that human being are very scared of loss.

The majority of us are more scared of losing money than gaining it, eg, a person gambles, they have a 50-50 chance of winning $100 and losing $100. It was observed that the pain that they feel when $10 was lost was way much more intense than the euphoria that they felt when they won $100. This, therefore, affects decision making as we will always make decisions that help us evade the pain of loss. To divert for a second, without even talking about finance, do you remember the pain of losing a loved one? Its excruciating.

This behaviour to avoid loss is why we end up being gullible when approached by fraudsters? One will offer you an investment idea that your sixth sense will tell you its too good to be true, you will do a due diligence that is also biased. For example, one will come and tell you about the excellence of Elamant, MMM, Crowd1 , tell you about the profits to be had from this venture. You won’t commit there and then, you will decide to do your due diligence. You will then call the next person that you heard talking about the awesomeness of Elamant or Crowd1, this is not research….this is you wanting to satisfy a biased brain that you are doing your due diligence. Because proper due diligence entails you looking at all angles and then making the best decision possible.

I can never get over people that come to me about Elamant and Crowd1, mind you, I haven’t done my research on it so I am not in a position to judge whether they are good investments or not. But the stories that they tell me of how much is earned, I actually look at them and ask, do you believe all that is coming out of your mouth. One person told me that you pay a subscription fee, start sending receipts to some place and start earning money. Huh? That doesn’t make sense to me. So I ask them, what is the product of this company, they are quick to tell me, that they are not sure but they have been getting their payments since they started sending receipts.

I am not sure what goes on with these kind of things, but to me all I see, is someone who is scared of losing money and they have convinced themselves that the money they have put in for subscription will come back

You are not alone if you are scared of loss but doing proper due diligence and taking calculated risks might get you far.

Please subscribe to my mailing list to hear more from me.

2 thoughts on “Are you scared of loss?

    1. I generally feel that people are busy…so I shouldn’t waste their time by writing long articles that people will scan over and move on. That is why my articles are always short

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s