A client consistently reacts to market downturns by selling off portions of their portfolio at a loss, only to reinvest when the market has already recovered. This behaviour is most closely associated with which behavioural bias?

Question: A client consistently reacts to market downturns by selling off portions of their portfolio at a loss, only to reinvest when the market has already recovered. This behaviour is most closely associated with which behavioural bias?

Answer options: ✅ Loss aversion

• Anchoring
• Herd mentality
• Confirmation bias

Correct answer: Loss aversion

Explanation: Loss aversion describes investors' tendency to prefer avoiding losses over acquiring equivalent gains. This can lead to irrational decisions, such as selling during downturns to avoid further losses, even if it means missing subsequent recoveries.