Long-term contracts can help avoid inefficient renegotiation caused by loss aversion. The study shows that simple long-term contracts work better than previously thought, even though loss aversion can make renegotiation inefficient. By using long-term contracts as a reference point during renegotiation, parties can compare gains and losses more effectively. In "bad" states, long-term contracts may not always be enforced, making renegotiation easier and improving contract performance. Option contracts, where only one party has the decision-making power after the fact, are the most effective in preventing inefficient enforcement due to loss aversion. These findings provide insights on how to structure long-term contracts when parties are aware of their loss aversion.