LOSS AVERSION · RULE
Rules versus impulse
Has rules, but reinterprets them when the moment comes
Scores on the four axes
The axis this page explains
Rules versus impulse
which wins between the standards you set in advance and the judgment of the day
Answer the questions and your scores on all four axes will appear here.
What it means
What you lack is not knowledge but the distance between knowledge and action. You generally know what to look at and you set standards. But when the moment actually arrives, the sentence "today is different" comes to mind first, and the standard becomes a reference rather than a rule.
This axis amplifies the other three. Feeling losses heavily, counting money in separate pots and avoiding regret are, by themselves, only feelings. Results are made when those feelings turn into action that same day. How much time lies between feeling and action is what this axis measures.
The most dangerous form is chasing losses. Once quickly recovering a grown loss hardens into the goal, the basis of judgment moves from the company to the size of your loss. From then on, how fast you fill the hole drives the decision more than what you get into.
How it shows up
- You reinterpret the standards you set when the moment comes
- More than half of your recent decisions were seen and acted on the same day
- When a loss grows, you want to scale up and win it back quickly
What research has seen
A study of Finnish investor data estimated that the tendency to realize winners and hold on to losers costs the average investor between 3.2% and 5.7% in returns. In experiments, when positions were designed to close automatically at the end of each period, the tendency fell sharply. The people did not change. Only the moment of decision was moved in advance, and the results changed. It is often cited as evidence that procedures are easier to work with than personality.
Adjusting the process rather than the temperament
- Write your standards in a file or a note, not in your head. Unwritten standards get rewritten by the mood of the day
- Do not act the same day on what you learned that day. Waiting even one day separates most impulses from reasons
- Do not make winning back a loss your goal. Once recovery becomes the aim, the basis of judgment moves from the company to your account
When not to trust this score
A score on this axis does not mean weak willpower. What research shows again and again is that fixing the moment of decision in advance works far better than strengthening willpower.
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.
More on Jupick
What the other three axes measure
This assessment is reference content that describes investor psychology. It is not a suggestion to trade any stock or product and not investment advice. Investment decisions and their responsibility rest with you.