Alex is deciding whether to spend his savings on a new car or invest it in a startup he believes in. He values the freedom a car provides but is also excited about the potential financial return from the startup. Which behavioral economics principle best explains Alex's decision-making process in this scenario?

In this situation, the behavioral economics principle of loss aversion can help explain Alex's decision-making process. Loss aversion suggests that people tend to prefer avoiding losses over acquiring equivalent gains. Alex may feel that spending his savings on a car means losing that money, which could lead to a feeling of regret if the car doesn’t provide enough value compared to the potential gains from the startup. For example, if he invests in the startup, he could gain a larger financial return, but he might worry about the risk of losing his savings if the startup fails. This internal struggle between valuing immediate benefits, like the convenience of a car, and the potential long-term gains from investing can make his decision difficult.