Loss Aversion

Loss aversion, related to sunk cost fallacy, makes individuals reluctant to admit defeat or make mistakes to avoid pain, regret, or shame while seeking pride. People with higher net worth tend to have lower loss aversion tendencies. Sunk cost fallacy can lead individuals to persist in failing businesses or investments due to emotional attachment or past sacrifices, despite objective evidence of failure. Mental accounting, where individuals assign different values to money, can also lead to irrational financial decisions, such as not realizing the overall impact of scattered accounts.