behaviour
Prospect theory
The rule
A loss hurts about twice as much as an equal gain feels good. Losing ₹1,000 stings more than winning ₹1,000 pleases, and that uneven pain quietly bends what you hold and what you sell.
Where it flips
But the 2x figure is an average from tests, not a personal law. Some people feel loss more sharply, some less. Treating it as an exact number is its own mistake. What matters is the direction of the tilt, not the precise multiple.
Kahneman and Tversky measured what investors feel but rarely name. We do not weigh gains and losses on the same scale. Losing ₹1,000 hurts about twice as hard as winning ₹1,000 feels nice. So the mind works harder to dodge a red mark than to earn a green one. That is why a falling holding is so hard to sell. Selling makes the loss real, while holding keeps the hope alive. It is also why small gains get grabbed too soon, to lock in the relief before it slips away. The idea does not tell you what to do. It explains why the doing feels so uneven, and why the same facts make you act one way on a winner and the opposite way on a loser.
A worked example
A reader holds two positions, one down ₹8,000 and one up ₹8,000. The rupee amounts are equal, but the loser is checked five times a day and defended, while the winner is sold within a week to 'be safe'. Same number, twice the pain on one side. [illustrative]
How to spot it
- ·a losing position watched far more anxiously than an equal winner
- ·small gains grabbed quickly to stop the relief slipping away
- ·the word 'breakeven' used as if it meant something real
Daniel Kahneman & Amos Tversky · Prospect Theory: An Analysis of Decision under Risk (1979)