By considering the agent’s loss aversion irrational psychological characteristic and introducing the piece-wise linear gain-loss function, the incentive mechanism for knowledge sharing within teams based on loss aversion is proposed. It is compared with three cases that lack loss aversion to analyze the incentive effects. The simulation method is adopted to analyze the effects of target performance and loss aversion coefficient and knowledge sharing importance coefficient on the two parties’ optimal decisions and the principal’s expected utility. The results show that loss aversion and the principal’s punishment are negative stimulations, so they must change coincidentally, otherwise it may weaken loss aversion’s incentive function, and the target performance has a threshold requirement and should be maintained at a relatively low level, when target performance is given the degree of loss aversion which has a upper limit, and the punish incentive mechanism based on loss aversion has the advantages and rationality.