SignalFrogIn the late 1970s Daniel Kahneman and Amos Tversky demonstrated something that hundreds of studies have since confirmed: people feel a loss roughly twice as intensely as an equivalent gain. Losing 1,000 euros stings about as much as gaining 2,000 would please.
What follows from it
The asymmetry is not a flaw in the narrow sense — it made evolutionary sense. For investment decisions, though, it produces three recurring patterns:
Holding losses too long. As long as nothing is sold, the loss does not feel final. Selling makes it real, so selling is postponed.
Taking gains too early. Conversely, a gain is banked before it can disappear again.
Overweighting rare events. A crash that occurs every twenty years feels closer than it is — especially shortly after one has happened.
How a risk signal relates
A signal describing the state of the market helps precisely here: it shifts the question from "how does this feel right now?" to "what does the data say?". It replaces no judgement — it simply gives that judgement a second, disinterested voice.