In 1979 Daniel Kahneman and Amos Tversky set out prospect theory: people judge an outcome as a gain or a loss from a reference point — often what they paid — rather than by where they end up. And losses weigh more. That's loss aversion: losing £100 feels worse than gaining £100 feels good. A 2024 review of 607 estimates put the average at about 1.96 — close to twice — though estimates vary widely between studies and settings, and some researchers argue the effect is smaller.
The asymmetry shows up when you sell. A holding that's down is measured against what you paid, so selling it turns a paper loss into a real one, and that feels worse than the money involved. A holding that's up is a gain you can lock in, and locking it in feels good. Neither feeling says anything about what the share will do next. The app measures each holding's gain or loss against what you paid — the same reference point the feeling uses.
The average estimate, not a law. It varies from person to person and from study to study.
SOURCES
- Kahneman, D. & Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 47(2), 263–291.
- Brown, A. L., Imai, T., Vieider, F. M. & Camerer, C. F. (2024). Meta-analysis of empirical estimates of loss aversion. Journal of Economic Literature, 62(2), 485–516.
Educational content only. It is not personal financial advice.