Loss Aversion

Imagine you find a fifty dollar note on the footpath. You feel good. Now imagine you reach into your pocket and realise you have lost a fifty dollar note. You feel terrible. Logically, these two events are mirror images. Fifty dollars gained, fifty dollars lost. But they do not feel equal. The pain of losing fifty dollars is roughly twice as powerful as the pleasure of finding it. You would need to find a hundred dollar note to feel as strongly good as losing fifty made you feel bad. This asymmetry between gains and losses governs almost every financial decision you will ever make. Now imagine you are at a poker table. You are up three hundred dollars and feeling confident. You lose a hand and drop back to two hundred. A rational player would note they are still ahead and keep playing calmly. But your brain does not see a two hundred dollar gain. It sees a one hundred dollar loss from where you just were. You start playing aggressively, chasing that lost hundred, making worse decisions because the loss feels unbearable even though you are still winning.