Explain the notion that losses loom larger than gains. Be able to explain a figure demonstrating this concept and draw a figure showing this concept.

The notion that losses loom larger than gains is the idea that individuals experience greater disappointment and distress from perceived losses than elation from equivalent gains. This concept is also known as loss aversion, which states that potential losses are more significant to individuals than potential gains, and research has found that people often display a strong preference for avoiding losses. To explain this concept, a figure showing the impact that different losses and gains can have on an individual’s happiness can be used. A figure showing this concept would involve a bar graph that compares the expected levels of happiness to losses of varying sizes and gains of equivalent sizes. For example, the x-axis may show losses or gains of $100, $500, $1,000, etc. The y-axis may show the corresponding levels of happiness, beginning with a baseline happiness of 0. As losses increase along the x-axis, the y-axis corresponding happiness decreases. On the other hand, as gains increase along the x-axis, the y-axis happiness increases, but not by a corresponding magnitude. The idea is that, although losses and gains of equal magnitude produce opposite reactions in terms of happiness, losses generate a stronger reaction.