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Psychology of Loss Aversion

From the archives of sprott money news

February 5, 2018


It’s one of the most powerful emotions anyone can experience. Fear can ruin your life, or save it, depending on the situation. It guides most people’s day-to-day lives—and fear of losing what you have shapes decision-making like nothing else in this world.


Psychology has proven that people have a loss aversion ratio of between 1.5 and 2.5. This means you are much more likely to act in a way that protects what you currently have rather than rock the boat and risk losing it all.


Most people are averse to losing. This is understandable and should come as no surprise to anyone.


It’s why people tend to become more conservative in times of prosperity—and hostile to anyone that would threaten it.


Due to the nature of my work, I am forced to listen to copious amounts of MSM news drivel, read countless social media posts and inundate myself with chatter from both sides of the aisle in an effort gain a clear picture of what is actually going on.


What I have learned can be boiled down to a simple and easy-to-understand phrase: "It's all about the economy, stupid.”


Ironically, this phrase was made famous by Bill Clinton in 1992, as he ran for President of the United States as a Democrat and won.


Now the tables have turned. It’s not the left who’s embracing this ideology, but the right, via President Trump. Meanwhile, the Democratic Party (who penned the phrase) are scratching their heads in confusion.


They watch in shock as President Trump’s approval ratings tick higher, along with the approval ratings of the Republican party as a whole, while theirs trend lower.


I'll say it again, "It's all about the economy stupid".


Wages are rising in the United States at a very healthy pace. Unsurprisingly, GDP is increasing alongside this surge in earnings, while unemployment is dropping. Forget the fact that debt levels continue to soar—the vast majority of people will only deal with this when they are absolutely forced to.


Anyone that can put aside their emotions for a moment and look at the facts will understand why Trump’s popularity continues to gain traction, not only with the "never-Trumpers" in his party, but also with the majority of those who call themselves "independents,” the most important group of voters in any election.


Therefore, I confidently predict that as long as this fiat-based stock market bubble continues to grow, and as long as jobs continue to return to the United States, the Republican party will not only win the 2018 midterms, but any election thereafter, for the foreseeable future.


That is, until things change... and they always do.

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About the Author

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.