Loss Aversion Bias Effect on Investment Decisions of Individual Equity Investors -An Empirical Analysis

Loss aversion refers to investor's tendency to dislike losses more than they like gains as the pain of loss is three times more than the pleasure of an equal amount of gain. Loss aversion is an emotional bias. Emotional bias refers to the fact that a person will tend to believe something that is pleasant or uplifting even if there is ample evidence to the contrary. The current paper attempts to understand the Loss aversion bias and its implication for individual investors and also to know whether individual equity investors exhibit Loss aversion bias while making investment decisions. Based on empirical analysis it can be concluded that investors exhibited loss aversion bias when they were asked to make investment decisions when confronted with safe & possible loss and sure loss & possible loss but not so when it comes to sure gain & possible loss.