Disposition Effect

Documented across large samples of brokerage accounts, the effect follows directly from prospect theory: a gain sits in the concave region where people prefer certainty, and a loss sits in the convex region where they prefer the gamble of recovery. It is costly twice over — momentum means recent winners have tended to continue, and in India realising gains within twelve months attracts the higher short-term capital gains rate while realising losses provides a set-off. So the tax code rewards exactly the opposite behaviour. The countermeasure is a written exit rule set before entry, since the decision made under the pressure of a loss is the one the effect corrupts.