Fisher Investments Canada discusses the relevance of prospect theory, first explored by psychologists Daniel Kahneman and Amos Tversky nearly 50 years ago, to modern investing. The theory explains human tendencies to weigh losses more heavily than equivalent gains, a concept known as myopic loss aversion. Through experimental scenarios, Kahneman and Tversky demonstrated that people often risk larger losses for a small chance to avoid a certain loss, while preferring guaranteed gains over potentially larger, uncertain gains. Fisher Investments Canada highlights how this behavioural bias can influence investment decisions, such as avoiding poorly performing sectors or making reactive shifts between stock categories. Using historical examples, including the 2022 downturn in global and technology stocks and the 2020 market response to COVID-19, the article illustrates how reactionary decisions may lock in losses or miss recovery opportunities. The firm recommends investors focus on long-term goals, examine whether their financial objectives have changed, and consider whether fundamental factors—not recent market performance—justify selling or buying. Recognizing and managing emotional impulses is crucial to mitigating unnecessary risk and supporting long-term investment outcomes.