Loading...

Loss Aversion and Habit Formation

 

Loss aversion is our tendency to prefer avoiding a loss over receiving a gain.

Loss aversion explains why you sit through a terrible movie purely because you paid for the ticket.

You don’t want to waste money, you want to avoid a feeling of loss. If you put money on the line, you will be motivated to follow through in order to avoid losing the money.

It’s a powerful psychological motivator, thought to be twice as powerful as a positive rewards system.

Use this habit hack to instill lasting habits.

This video explains it really well:

 

Transcript:

What is loss aversion?

Imagine two people in the same financial situation. One loses $100 the other wins $100.

You would think that the first person would lose about as much satisfaction as the second person gains, right?


You would be wrong.

Loss aversion is the wiring that makes people feel more depressed at the loss of $100, than elated at winning the same amount of money.

Loss aversion explains why you sit through a show that you hate simply because you paid for the ticket. You don’t want to waste money, you want to avoid a feeling of loss.

People are more motivated to avoid a loss than receive a gain.

Loss aversion is a powerful psychological motivator, thought to be twice as powerful as a positive rewards system.
So there you have it, we are stingy and cling to what we have more than we are prepared to work for better.
Daniel Kahneman is a psychologist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences. He has a number of papers on the topic of loss aversion.
If you want to find out more, I suggest his best-seller, ‘Thinking, Fast and Slow’.
loss aversion. Thinking fast and slow book.