Loss aversion. Human beings are more motivated by the thought of losing something than by the thought of gaining something of equal value. This is especially true under conditions of uncertainty. The threat of potential loss plays a significant role in our decision-making, and we have a natural tendency to be loss averse. Or, in Munger’s words, “The quantity of a man’s pleasure from a ten-dollar gain does not exactly match the quantity of his displeasure from a ten-dollar loss.”7 This is the foundational principle of Daniel Kahneman and Amos Tversky’s prospect theory (figure 31.3).
