Behavioral quote of the week
A single cockroach will wreck the appeal of a bowl of cherries, but a cherry will do nothing at all for a bowl of cockroaches.
Daniel Kahneman, in Thinking Fast and Slow, quoting psychologist Paul Rozin
A striking observation for sure but one with great significance for behavioral psychology and behavioral finance as well. Kahneman uses this comparison as a simple example of how we react far more strongly to negatives (losses) than to positives (gains). Further research has shown conclusively that investors weigh losses more than gains, by a factor of up to two.Tags: behavioral finance