What bias would influence an investor’s decision to continue to hold an unprofitable investment despite little likelihood of an improvement in the investment’s value?
Loss aversion bias causes investors to hold onto unprofitable investments due to a stronger desire to avoid losses than to seek gains. The feedback from the document states:
"Loss aversion bias states that people generally feel a stronger impulse to avoid losses than to acquire gains. Loss aversion can prevent people from unloading unprofitable investments, even when they see little to no prospect of a turnaround."
[Reference: Chapter 5 – Behavioural FinanceLearning Domain: The Know Your Client Communication Process, , , ]
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