The Psychology: Why Losing $100 Hurts More Than Gaining $100 Feels Good
- Marketing MyITS
- Sep 12
- 4 min read
The Uneven Scales of Emotion
Picture this: you’re walking home and spot a crisp $100 bill on the sidewalk. Your day instantly brightens. Maybe you treat yourself to a nice meal, maybe you just smile knowing you’re “up” a hundred bucks. By tomorrow, the excitement fades, but it leaves a pleasant memory.
Now imagine the opposite—you check your wallet and realize you’ve lost $100. The frustration doesn’t fade so easily. You replay the loss in your head over and over. Maybe you blame yourself for being careless. The regret lingers not just for a day but sometimes for weeks.
That’s the essence of loss aversion: our brains are wired to feel the sting of loss far more deeply than the pleasure of a gain.
The Psychology: Why Losses Loom Larger
Back in 1979, psychologists Daniel Kahneman and Amos Tversky introduced Prospect Theory, which showed that people evaluate outcomes not on absolute value but relative to perceived gains or losses. Their research suggests that losses carry about twice the emotional weight as equivalent gains.
Other studies back this up:
In experiments with professional athletes, losing a match created more intense emotional and physiological reactions than winning did.
A Yale study on investors found that people check their portfolios more often during downturns, even though it causes more stress and worse decision-making.
Neuroimaging research shows that the brain’s amygdala (fear center) activates much more strongly when anticipating losses compared to gains.
In short, our evolutionary brains see losses as threats to survival. Gains are nice. Losses feel dangerous.
Loss Aversion in Everyday Life
This bias doesn’t just show up in trading—it’s everywhere in our lives:
Shopping: You refuse to throw away a shirt you never wear, because “I spent money on it.”
Relationships: People stay in unhappy relationships because leaving feels like “wasting years already invested.”
Work: You keep a boring job rather than risk trying something new, because you fear the “loss” of security more than you value the potential gain of growth.
Gambling & Games: Casinos thrive on this. Players keep betting to “win back” their losses, a behavior known as chasing.
This explains why even highly rational people often make irrational money choices.
How It Destroys Traders
Loss aversion is particularly brutal in financial markets, where fear and greed run the show. Some classic patterns:
Holding Losers Too Long
A trader buys Bitcoin at $60,000. When it drops to $40,000, instead of cutting losses, they hold… and hold… telling themselves it will bounce back. They’d rather risk losing more than admit they were wrong.
Selling Winners Too Early
Another trader buys Ethereum at $1,500, sees it rise to $1,700, and sells immediately—afraid to “lose” that $200 profit. Later, ETH soars past $3,000. The pain of “missing out” hits harder than the joy of the gain.
FOMO Buying
When prices skyrocket, social media feeds fuel the fear of being left behind. Loss aversion flips into overdrive—people fear the “loss” of opportunity more than the risk of a crash.
According to Dalbar’s Quantitative Analysis of Investor Behavior, the average U.S. investor underperforms the S&P 500 by 3–4% annually, mostly because of emotional mistakes tied to biases like loss aversion. Over decades, that difference compounds into hundreds of thousands of dollars.
Breaking Free: Systems Beat Emotions
The bad news: you can’t turn off loss aversion. It’s built into your brain.The good news: you can build systems to protect yourself from yourself.
Pre-Commit Rules
Set stop-loss and take-profit levels before entering a trade. Don’t trust your future emotional self to “decide later.”
Use Data, Not Noise
Instead of following hype on Twitter, rely on platforms like Arkham, Nansen, or Dune to track what smart money wallets are actually doing.
Automate Execution
Tools like 3Commas, Coinrule, or Pionex let you code rules into bots so trades happen without emotion.
MyITS goes further, using AI-driven bots that adapt strategies to live market conditions—removing the temptation to check charts every hour.
Think of it like dieting. You could rely on willpower not to eat junk food… or you could simply remove junk food from your house. Automation is the financial equivalent of an empty snack cupboard.
Loss Aversion Teaches Us Something Deeper About Money
Finance isn’t just math—it’s psychology. That’s why two people with the same portfolio can have very different outcomes: the calmer one sticks to the plan, the emotional one sabotages themselves.
The real goal isn’t to become emotionless. It’s to accept that emotions exist and design systems that work with human psychology instead of against it.
So the next time you feel sick watching your portfolio dip, remember: it’s not weakness—it’s human. What separates successful traders from struggling ones is not who feels fear, but who has a plan that protects them when fear shows up.
If you want to trade smarter:
Start tracking your emotional triggers.
Use data instead of headlines.
Pick one tool that automates part of your process—whether it’s a stop-loss rule, a trading bot on 3Commas, or MyITS’s AI system for futures.
Because in the end, the markets will always move. The only real question is whether your emotions move with them.
Disclaimer
This article is for educational and informational purposes only. It does not constitute financial advice. Always conduct your own research or consult a certified financial advisor before making investment decisions.
