Behavioral Economics for Business People

Economists argue that opportunity costs are the relevant metric when it comes to making decisions. However, individuals sometime appear to weigh money costs and implicit opportunity costs differently. The result is often characterized as "loss aversion," where the disutility of giving up an object is greater than the utility associated with acquiring it. For instance,
people are often reluctant to sell a stock that has performed poorly until it is back to the price it was originally bought at. A consequence of loss aversion is that these same people become risk averse for gains, but risk-takers for losses.

I was reading V.S. Naipaul's A Bend in the River when I came across this passage that helps fix the idea. The narrator is in the process of buying a business from an owner wishing to sell and receives this advice from the owner of the business.

"You must always know when to pull out. A businessman isn't a mathematician. Remember that. Never become hypnotized by the beauty of numbers. A businessman is someone who buys at ten and is happy to get out at twelve. The other kind of man buys at ten, sees it rise to eighteen and does nothing. He is waiting for it to get to twenty. The beauty of numbers. When it drops to ten again he waits for it to get back to eighteen. When it drops to two he waits for it to get back to ten. Well, it gets back there. But he has wasted a quarter of his life. And all he's got out of his money is a little mathematical excitement."