the gain. We call this loss aversion, where a $1 loss pains us 2.25 times more than a $1 gain helps us, according

to the economists Daniel Kahneman and Amos Tversky in a famous 1979 article in the journal Econometrica.

This insight has implications for investing, as people tend to “overplay” the stock market by reacting more to

losses than to gains. This behavior looks irrational to traditional economists, but is consistent once we
understand better how the mind works, these economists argue.

Traditional economists also assume human beings have complete self control, but, for instance, people will

buy cigarettes by the pack instead of the carton even though the carton saves them money, to keep usage

down. They purchase locks for their refrigerators and overpay on taxes to force themselves to save. In other

words, we protect ourselves from our worst temptations but pay a price to do so. One way behavioral
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