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Henry Gribbohm, the Effect of Loss Aversion, and How to Avoid It Yourself - CryptoStops
 

Henry Gribbohm, a 30 year old man, tried winning an Xbox valued at $100, by playing the carnival game Tubs of Fun. He dropped $300 in just a few minutes, then he went home to get $2,300 more, his life savings. He kept trying to win back his money by going double or nothing and soon lost everything he had.

Tubs of Fun is a simple carnival game. You throw a softball into a plastic tub from a few feet away. The ball has to stay in the tub to win. It sounds easy, but it’s not. It’s a carnival game. You’re not supposed to win, right?

Henry succumbed to loss aversion and kept losing. “For once in my life I happened to become that sucker,” he said. “It was foolish for putting up my life savings.” 

Loss aversion is the tendency to prefer avoiding losses to acquiring equivalent gains. This is represented by the statement that it is better to not lose $5 than to find $5. Traders succumb to the same behavior when they insist on hanging on to an asset when it is obvious the better decision is to sell. CryptoStops provides the tools to help reduce the effect of emotion in trading decisions and hopefully help reduce the chance of a catastrophic loss.