Ch.12 · Model Portfolios and Asset Allocation · hard
What does 'loss aversion' mean in the context of investor psychology and risk profiling?
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EXPLANATION
Loss aversion (studied by Kahneman and Tversky) shows that investors feel the pain of a ₹1,000 loss more intensely than the pleasure of a ₹1,000 gain. This leads behaviours like panic-selling during downturns or refusing to book losses. Awareness of this bias helps distributors guide investors through volatility.
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