Loss Aversion
Summary
- We feel more pain at loss than joy at gain.
Details
- For example, we feel worse at losing $100 than the joy at gaining $100.
- Apparently emotionally a loss weighs about twice that of a similar gain.
- If you want to convince someone, dont focus on advantages, focus on how to avoid disadvantages
- the loss aversion coefficient is 1:2.5 - We are willing to risk losing 100$ for every 250$ of potential gains.
- THe principle applies to putting ourselves out in the public space or engaging someone who may dismiss or reject us. This is scary, even if irrational
References
- The Art of Thinking Clearly by Rolf Dobelli
- The Great Mental Models Volume 2 - Physics, Chemistry and Biology
Quotes
Loss aversion is one of the principles that govern the value of outcomes. Daniel Kahneman explains it like this: “When directly compared or weighted against each other, losses loom larger than gains.” According to Kahneman, people are willing to risk losing $100 for every $250 of potential gains.1 The loss aversion coefficient is 1:2.5.2 This asymmetry between the power of positive and negative expectations or experiences has an evolutionary history. Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.2 When it comes to reciprocity, we need to understand, “We are driven more strongly to avoid losses than to achieve gains.”3 This is why putting ourselves out there, engaging people who might dismiss or reject us, is so scary. Because in the one-off situation, the pain it will cause is perceived as stronger than the positive feelings of acceptance. The trick is to start looking at outcomes in the aggregate instead of focusing on each unique situation.
from The Great Mental Models Volume 2 - Physics, Chemistry and Biology