Loss aversion
Losing hurting more than winning the same amount feels good. It is what makes people sell at the worst moment and hold what is beyond saving.
In the chapter
Reviewing, spotting traps and correcting
From the same chapter
- Periodic reviewLooking at the numbers on a fixed schedule, not when you remember. What is not reviewed drifts without anyone noticing.
- Lifestyle inflationSpending more as soon as you earn more. It explains how the salary rises and net worth does not.
- Mental accountingTreating money differently depending on where it came from. A windfall and a salary buy the same things, yet almost nobody spends them alike.
- Confirmation biasSeeking only what proves you right. In money it is expensive: it turns a bad decision into a defended one.
- Ponzi schemePaying the old with the money of the new. It works while people keep joining and collapses the day they stop.
- Pyramid schemeYou earn by recruiting, not by selling anything. Arithmetic condemns it: each level needs more people than all the previous ones combined.
- Red flagPromising a fixed, risk-free payout, rushing you, or being unable to explain where the money comes from. Any one of the three is reason enough to walk.