An except: “Sway points to three central psychological tendencies that cause human beings to behave irrationally, despite the preponderance of facts pointing in another direction. The first is loss aversion, defined as our tendency to go to great lengths to avoid possible loss – even when it means taking outsized risks relative to the actual loss impact. The second is value attribution, where we imbue a person with certain qualities based on our initial impressions (or desired impressions!). And the third is the diagnosis bias, where we allow our initial assessment of a person or situation cloud any further judgment and, in effect, cause us to filter out any contradictory data.”

Jeff goes on to discuss how loss aversion causes VCs to often put good money after bad, and how loss aversion causes entrepreneurs to not make tough firing decisions soon enough.

URL: http://bostonvcblog.typepad.com/vc/2009/01/sway-and-irrational-vcs.html

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