Prospect Theory: An Analysis of Decision under Risk
Daniel Kahneman & Amos Tversky · 1979
"Losses and gains of the same objective size are not felt equally — losing a given amount hurts roughly twice as much as gaining the same amount feels good — which systematically distorts decisions under risk away from what a purely rational, outcome-maximizing calculation would recommend."
Prospect theory, the paper that eventually won Kahneman a Nobel Prize, replaced the classical economic assumption that people evaluate outcomes by their final wealth with a more accurate model: people evaluate outcomes as gains or losses relative to a reference point, usually the status quo, and the psychological impact of a loss is roughly twice as intense as an equally-sized gain — a ratio researchers now call the loss-aversion coefficient, typically found to cluster between 1.5 and 2.5.
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Unskilled and Unaware of It
"People with low competence in a domain tend to overestimate their own ability, because the same skills required to perform well in that domain are also the skills required to accurately judge good performance — so incompetence doubly disadvantages you: it produces poor results and simultaneously removes your ability to recognize that the results are poor."