Loss aversion

Losses are felt roughly twice as strongly as equivalent gains, which distorts decisions in a predictable direction.

The consequence in portfolios is the disposition effect: selling winners too early to bank a gain and holding losers too long to avoid realising a loss. That behaviour is precisely backwards for both tax and momentum reasons.

The measured asymmetry comes from the prospect theory work of Kahneman and Tversky and has been replicated widely.

The fix is a selling rule written before the position exists.