Behaviorial Finance: Coping with gains

In a previous post on my series on Behaviorial Finance, I reviewed Richard Thaler’s concept of Loss Aversion behaviour which states that people, will feel more hurt emotionally with a loss than an equivalent gain gives pleasure. Consequently, we will be more prone to take excessive risks to eliminate the loss. Thaler also observed this phenomena in reverse specifically in how people behave when they are making successful financial/investment decisions. Thaler cites that this behavior gains critical mass in periods that would be described as financial bubbles, where people are enjoying repetitive excessive gains in their investments.

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