Thinking in a Foreign Language Helps Reduce Loss Aversion

According to behavioral finance theory, Loss Aversion causes investors to sell winning investments quickly in order to “lock in” gains and to hold on to losing investments in order to get even, regardless of the underlying fundamentals, changes in circumstances, or overall merits of each investment. University of Chicago researchers have discovered that we lessen Loss Aversion’s affects when we think in a foreign language.

The authors ran additional experiments using a paradigm called loss aversion, another case where emotion can influence decision making. People are reluctant to accept bets that involve a chance of losing money, even if the odds are in the favor of winning, such as a 50 percent chance of winning $12 vs. losing $10. Keysar and colleagues found that, regardless of whether the bilinguals played with hypothetical money or real cash that could be kept after the experiment ended, bilinguals accepted the positive bets more often when they played using their foreign language and more often resisted betting when using their native language. This confirmed the finding of…reasoning more logically when using a foreign language.

And to that end, here is a limited time offer to get a 35% discount on Rosetta Stone (I get nothing for this promotion by the way):

My wife and I plan to become fluent in Spanish.

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