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finance
You hold losing investments far longer than winning ones.
A 1985 study found that investors are significantly more likely to sell a stock that has gained value than one that has dropped.
We assign psychological pain to the realization of a loss. By holding onto a losing asset, we postpone that pain and hold onto the hope of a break-even point. This prevents us from allocating capital rationally.
You are wired to avoid the emotional hit of admitting you were wrong.
Where this comes from
- Study
- Shefrin and Statman, 1985, Journal of Finance
- What the check found
- Shefrin and Statman (1985) is the canonical source for the 'disposition effect'. While the provided text lacks the quote, the claim accurately describes a well-established finding in behavioral finance.
- Confidence
- Solid, with limits
Related
One of these every day, and every one names the study it came from. When a finding is contested, it says so.