MENTAL MODEL · M6336

Disposition Effect

BehaviorHigh supportPsychology

Included

Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

Investors tend to sell winning stocks (to lock in gains and feel pride) while holding onto losing stocks (refusing to admit defeat to avoid regret), leading to 'cutting profits short and letting losses run.'

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

The asymmetry in psychology between winning and losing. The rational strategy is to 'cut losses and let profits run.' To overcome the disposition effect, one must remove the 'purchase cost' from decision-making and focus only on 'future expectations.'

anchor

Anchor fast decisions

Due to the asymmetry between pride and regret aversion, investors prematurely realize gains (locking in profits) and hold onto losses for too long (refusing to admit defeat), resulting in 'cutting profits and letting losses run,' which is contrary to rationality.

MINIMUM ACTION

In progress 0/4

Practice this model in one real situation:

Remove the purchase cost anchor when making decisions
Focus only on the future expectations of the asset
Set stop-loss and take-profit rules and execute them mechanically
Regularly review to overcome psychological biases.

Check to track your progress (stored locally)

Learning progress0%

account_treeGenealogyexpand_more

menu_bookReferencesexpand_more

Source support: Explicit

link
zh.wikipedia.orghttps://zh.wikipedia.org/wiki/%E8%99%95%E5%88%86%E6%95%88%E6%9E%9CZH · Explicit
verified

RELATED MODELS