Question #1 What is loss aversion? __ Question #2 How does loss aversion influence our decision -making? __ Question #3 What are some examples of how loss aversion affects our lives? __ pen Ended Questions Question #1_How has

<br />1. Loss aversion is a concept in behavioral economics that describes the tendency of individuals to prefer avoiding losses to acquiring equivalent gains. It is a key principle in the prospect theory developed by Daniel Kahneman and Amos Tversky.<br />2. Loss aversion influences decision-making by causing individuals to place a higher value on avoiding losses than on acquiring equivalent gains. This can lead to risk-averse behavior, where individuals are more likely to avoid potential losses than seek potential gains.<br />3. Examples of how loss aversion affects our lives include:<br /> - Endowment effect: Once individuals own something, they place a higher value on it than they would if they didn't own it.<br /> - Status quo bias: People tend to prefer things to remain as they are, rather than taking a risk to improve their situation.<br /> - Insurance purchases: People are willing to pay for insurance to avoid potential losses, even if the probability of the loss occurring is low.