happen. We tend to focus more on the loss than the gain. Economists Daniel Kahneman and Amos Tversky in a

famous 1979 Econometricapaper called this "loss aversion", where a $1 loss pains us 2.25 times more than a $1

gain helps us. This has implications for investing, as people tend to “overplay” the stock market by reacting more to

losses than to gains.

Behavioral economics also tries to explain why people make seemingly irrational decisions in the presence of

different situations, or how they "frame" the decision. We outline a popular example here: Imagine you have the

opportunity to buy an alarm clock for $20 in Store A. Across the street, you learn, is the exact same clock at Store B

for $10. You might say it is worth your time—a five-minute walk—to save $10. Now, take a different example: You are

in Store A buying a $300 phone. Five minutes away, at Store B, the same phone is $290. You again save $10 by

taking a five-minute walk. Do you do it?
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