10. loss aversion
Loss Aversion causes us to become frightened by the potential downside of a decision, overemphasizing it in the decision-making process.
In Short: Loss aversion is a kind of vertigo — it kicks in when we get spooked by the possible negative consequences of a decision, and so we act with excessive caution. In the action movie, it’s what happens when the guy on the ledge hears the advice, “Don’t look down,” and then looks down.
For Example: In every bear market, some people get so unsettled by their short-term losses that they liquidate, thinking that it’s the best way to prevent further losses. In reality, it’s the best way to cement current losses, obviating any chance at recouping when the markets recover. Markets have had a knack for bouncing back; it just takes some emotional fortitude to ride out the downturns.