Public Enemy Number 1 – Loss Aversion

Or…how and why this primal emotion constrains us and what to do about it.

There are few feelings that can actually be measured by psychologists but the feelings we have around loss and gain are two that can be.

Oh My Gawd…

We are twice as upset by loss as we are pleased by gain. I lost a five figure sum (not including the pence) eleven years ago because I didn’t do something that would have taken literally 15 seconds.

IT STILL HURTS.  

This is because of loss aversion – our strong and compelling desire to avoid loss.

This desire is a lizard brain relic – from the time when sabre-toothed tigers roamed the earth and we had more to worry about than slow growth in a top ten economy, I mean, come on.

So this is what normally happens…

We think of something nice we might do.

Say, “I think I’ll set up my own business because it will be brilliant.” This is a gain. It is good and it feels right. We feel motivated – driven towards all the nice stuff that’ll flow from being our own boss and running our own thing.

Then the loss aversion creeps in…

…like a bore at a party. “But I’ll lose my regular salary at Scratch & Gouge Ltd” “What about my pension!” “No more Christmas parties.” Sorry, that last one’s a gain.

That’s why when you hear all this guff on the radio – “a poll shows that 75% of nurses/teaches/deep sea divers are thinking of leaving their profession in the next 12 months and taking up competitive macrame”, few ever do. The loss aversion freezes them in their tracks (the ones that actually meant it).

We imagine all the losses that walking away from notional security represent and they are very tangible and we feel them twice as much as the less tangible gains of setting up by ourselves so we do….nothing.

We do nothing.

Loss aversion has won…

…we have lost. And there the story ends…

Why do we have such a useless piece of wiring in our heads? Well, who knows? Let’s guess – at the end of the day all our psychology is trying to do is to keep us alive long enough to reproduce.

Oh Mother..!

After that, we are pointless in Mother Nature’s eyes. So she makes sure we run from the sabre-toothed tiger NOW, even although that cute cave woman over there by the salted mammoth was beginning to look us up and down with that look. That was maybe sensible when we faced death every day. But today the threats we face are seldom life or death and for the latter I think we are now smart enough to spot that level of danger. We don’t need the loss aversion automatic protection system. So no thanks Mother Nature. No thanks for loss aversion.

Larkin was right…

…your parents do f*** you up.

But…

…the 21st Century human can overcome this poor wiring. We cannot upgrade our brains (sadly). But we can apply a patch. A fix.

The story isn’t over…

Here’s what to do – reclassify the risks in, for example, chucking in our job and setting up our company, as “small and survivable”. Because they are. Compared to a risk with a high likelihood of death or irretrievable financial damage, what we’re talking about here is small and survivable. We will not die. It’s just that our brain is telling us that’s what we’re up against because our brain is very good at catastrophising. It’s designed that way.

Health Warning here people…

…we need to use our judgement in risk assessment. Chucking in your job has small and survivable risks. Going over the Niagara Falls in a barrel has large and potentially non-survivable risks. If you have a nagging feeling that you have the judgement of a C-list celeb on coke, seek advice from your more sensible friends.

Assuming…

…our risks do in fact have small and survivable risks, then we can see them in context and refocus on the huge positive motivation that naturally flows from the potential we can see in our first thought – setting up our own business or whatever it may be.

Understand loss aversion for what it is (a relic), and your motivation can act unencumbered and then you have truly defeated one of life’s greatest foes. Well done you.

,

No comments yet.

Leave a Reply