Course 3414 lessons

Behavioral finance: why we make bad money choices

A look at the mental shortcuts, like loss aversion, anchoring, and herd mentality, that quietly steer your money decisions and how to catch yourself before they cost you.

Loss aversion: losing hurts more than winning feels good

Behavioral economists have a name for a pattern almost everyone recognizes once they hear it: losing ₱1,000 feels roughly twice as painful as gaining ₱1,000 feels good. This is called loss aversion, and it's one of the most well-documented biases in how people handle money, formally identified by psychologists Daniel Kahneman and Amos Tversky in the 1970s as part of what they called prospect theory, research that later won Kahneman a Nobel Prize in economics for showing how real decisions depart from simple math.