The mirror of the house-money-effect. Sitting on a loss, most people become risk-seeking rather than risk-averse, because any outcome that ends at break-even feels enormously better than one that ends slightly down.
It is the engine underneath revenge-trading and chasing-losses. Size goes up, quality standards come down, and the plan is replaced by a target number: get back to zero. The market has no interest in your zero.
Treat the loss as already spent. Your only question is which trade has the best expected value from here, at normal size. A hard daily-loss-limit is the mechanical version of that decision, set when you were calm.
Related: mental-accounting, revenge-trading