Loss aversion, the idea that individuals are more sensitive to losses than to equivalent gains, is among the most recognised concepts in behavioural science. Since Daniel Kahneman and Amos Tversky famously coined the term in their seminal 1979 paper, Prospect Theory: An Analysis of Decision under Risk, numerous studies have documented the existence of loss aversion across a variety of choice contexts. Outside of academia, loss aversion has become a common topic in the financial media and in conversations between investment advisers and their clients.

In parallel with...