The Psychology of Loss Aversion and Why Trump Will Continue to Win… For Now – Nathan McDonald

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by Nathan McDonald, Sprott Money:

Fear.

It’s one of the most powerful emotions anyone can experience. Fear can ruin your life, or save it, depending on the situation. It guides most people’s day-to-day lives—and fear of losing what you have shapes decision-making like nothing else in this world.

Psychology has proven that people have a loss aversion ratio of between 1.5 and 2.5. This means you are much more likely to act in a way that protects what you currently have rather than rock the boat and risk losing it all.

Most people are averse to losing. This is understandable and should come as no surprise to anyone.

It’s why people tend to become more conservative in times of prosperity—and hostile to anyone that would threaten it.

Due to the nature of my work, I am forced to listen to copious amounts of MSM news drivel, read countless social media posts and inundate myself with chatter from both sides of the aisle in an effort gain a clear picture of what is actually going on.

What I have learned can be boiled down to a simple and easy-to-understand phrase: “It’s all about the economy, stupid.”

Ironically, this phrase was made famous by Bill Clinton in 1992, as he ran for President of the United States as a Democrat and won.

Now the tables have turned. It’s not the left who’s embracing this ideology, but the right, via President Trump. Meanwhile, the Democratic Party (who penned the phrase) are scratching their heads in confusion.

They watch in shock as President Trump’s approval ratings tick higher, along with the approval ratings of the Republican party as a whole, while theirs trend lower.

I’ll say it again, “It’s all about the economy stupid”.

Wages are rising in the United States at a very healthy pace. Unsurprisingly, GDP is increasing alongside this surge in earnings, while unemployment is dropping. Forget the fact that debt levels continue to soar—the vast majority of people will only deal with this when they are absolutely forced to.

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