Loss aversion test

Why four axes instead of one score

Someone who cannot let go in a falling market, someone who exits a rising stock too early and someone who scales up to win a loss back quickly may look alike from outside, but they get stuck in different places. Merge them into one number and where they get stuck disappears.

In 1985, Shefrin and Statman explained the tendency to realize winners and hold on to losers through four psychological factors together: feeling losses heavily, counting money separately by purpose, avoiding regret, and self-control. Their conclusion was that no single factor explains the whole pattern, which is also why this test splits it into four axes.

So the result is not one type but the tilt across four axes. The axis that came out highest is explained first, and the scores of the other three stand on the same screen.

Loss aversion is not risk aversion

The two terms are often mixed up. Risk aversion is disliking situations whose outcome is uncertain. Loss aversion is feeling a loss more strongly than a gain of the same size. They point in different directions, so they lead to different conclusions.

A typical scene is someone with strong loss aversion taking even bigger risks once in a loss. Careful as usual, once already down they choose whatever might win it back, not because they like risk but because a locked-in loss feels unusually heavy. If the risk tolerance score on Jupick measures how much swing you can bear, this test measures which way you react in front of that swing.

How the score is calculated

The 12 questions are split evenly, 3 to each of the four axes. Each question scores from 0 to 3, so each axis is out of 9, and that value converted to a 100-point scale is the axis score. No axis carries extra weight.

A high-scoring axis is not a bad axis. All four are traits most people have, and what this test does is note which of them stands out more in you.

What the four axes measure

When not to trust this score

This test measures answers you report yourself, not actual behavior. One thing research on psychological biases has pointed out again and again is that people expect themselves to act more calmly in such situations than they actually do. A low score does not mean the bias is absent.

Axis scores are relative values for comparing the axes with one another. If all four axes come out at 30, it may mean the biases are weak, or that you have not yet been in the situations the questions ask about.

Having a strong bias and losing money are different things. This test does not predict outcomes and gives no answer about what to trade.