Cognitive Biases and the Vue Charlotte: Loss Aversion

While putting together some data for a comparable against the Vue, I thought I would take this time to refresh my memory of some of the psychology that will accompany this upcoming decision. Known as cognitive biases, there seem to be several that I am battling with. Today, I’ll mention one, and that is loss aversion. Simply stated, according to this theory, humans value avoiding loss moreso than achieving gains. The emotional pain of losing a dollar is twice as much as the joy of gaining one. In the stock market, because we don’t sell at a loss when a stock goes down, we hold on in the irrational belief that some day it might become profitable, missing other more profitable opportunities. This is in direct violation to the saying…”cut your losses and let your profits run.”

I know deep in my heart that the price I paid for my unit of the Vue has gone down. And I know it has gone down a lot. Of course I want to believe those who say they my unit will appraise at the price I paid and that I haven’t lost anything. In fact, look at the current price sheet…”I’ve gained!” Wow, amazing, the economy has collapsed, no one can sell their homes, there are 9.5% unemployed, Charlotte job growth has disappeared, and I have made a huge paper profit if I will only close on my unit! And never mind the risks involved if I do close, the best part of all is at least I won’t have to feel the excruciating emotional pain of taking a large loss (at least right away) and feeling like an idiot for ever getting involved in this investment! As I try and keep my head clear, I am acutely aware of loss adversion and other psychological flaws of human nature that come into play when making  financial decisions. We’ll talk about some other cognitive biases in future posts. If you have one you feel you are battling, please share it in the comments!

This entry was posted in Uncategorized. Bookmark the permalink.

One Response to Cognitive Biases and the Vue Charlotte: Loss Aversion

  1. Scott Wenk says:

    I am a buyer in both Orlando and Charlotte and would like take a minute to share some of knowledge I gained after going through the bankruptcy in Orlando. In Orlando, a major problem was lending. Apparently the FHA imposed new regulations as the economic dowturn worsened to try to stem the tide of foreclosures. They imposed minimum limits on the number of condo units in a project that had to be sold before the FHA would allow conventional financing. In Florida, I believe that number is 70%. The Vue was about 65% sold. Because of this, no one could sell their units including the developer! The only people that could buy were those with hard money loans or cash. Thus, the FHA inadvertently made the situation Harder for condo projects that were built, but teetering on the edge. I believe that was a major contributor to the project failing.
    In North Carolina, the number is %50. We have heard for sometime that the Vue Charlotte is a certain percentage sold. This is the same number we have heard for several years. My question are: how many of the buyers will close? Will that number exceed a 50% level? And, if it does not, what happens to those who are stuck in a building in which no one else can get financing? To date, I have not heard of any type of seller financing.
    I’ve included a linkto a webpage that shows the FHA approved condominium projects. I couldn’t find the Vue Charlotte on the site.
    Scott Wenk, Orlando, Fla

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s