IMAGINE having lost a generically-branded P7,000 mountain bike to a thief. You cried a river because it was a product of your hard-earned money and cursed the unidentified intruder with the same venomous language used by the presidential minions on social media. You went castigating the subdivision security guards for sleeping on the job, and threaten to banish them from your neighborhood.
That was it, until a good neighbor for some reason gave you his Shimano bike – which was almost the same type and value as that of your lost bike, except that it’s a 10-year old model that had been kept unused in his garage. The donation was made without any condition and you were made to understand by your donor that he has not used it for more than three years, and that was due to an accident.
Would you still feel bad about your loss? Chances are, you would. That’s because evil (stealing in this case) is more prevalent, plentiful and powerful these days to bring many of us down to our knees. As human beings, we are more sensitive to bad things than to good ones. We can’t take our minds off an unfortunate incident that has befallen us.
And that’s why people need motivational speakers to help them get out of that sphere of negative vibes.
In the corporate world, we are more terrified at having bosses with scary faces, rather than by mestizo-looking, handsome, smiling ones, even if they’re stricter in implementing the “no-ID, no-entry” rule in office premises. Much more in government, we tend to cast doubt on the integrity of government workers who are often mistakenly suspected as corrupt, even in the absence of concrete proof. It’s unfair, but you can’t blame people for this perception because they have suffered a lot for as long as one can remember.
Likewise, gamblers are also suffering the same fate. If one lost P100,000 in a hotel-casino he would naturally feel bad about it, and would continue to bet on his favorite baccarat, believing he always had another chance to recover the same amount, plus several hundreds of thousands more, until it’s too late.
We remember all the negative things longer than positive ones. In behavioral economics, this phenomenon is called “loss aversion” – which, according to Daniel Kahneman and Amos Tversky in “Econometrica” (1979)means – “losses loom larger than gains.” Kahneman and Tversky were the first two behavioral scientists to describe man as having the tendency to be afraid more of losses than the prospect of getting the same value in another, guaranteed opportunity.
It is better not to lose P100 because we are doubly disappointed when that happens, than we would be happy gaining the same amount as a windfall. At times, we would even question the motives of people, like that of a good neighbour donating an equally valuable bicycle.
Loss aversion complements other theories in behavioral economics, which include the “endowment effect,” which happens when we overvalue a property more than its objective price in the market as determined generally by the law of supply and demand, or particularly by the value given by an insurance carrier.
This happens because we tend to attribute many things to a property having its sentimental value or emotional significance, but of zero value to other people other than its physical attributes.
In marketing, loss aversion is observed when sellers give out free trials of their products or services for a limited time, normally for 30 days, such as the example of Netflix. Another form is seen when marketers set a limited period for potential customers to avail of a discount, rebate, or freebies.
I can understand this from the perspective of my beautiful wife, who is a perennial victim of merchandisers selling two packs of toothpaste packaged with a toothbrush, never mind the fact that we’re still awash with 93 pairs of toothpaste and toothbrushes in our bathroom.
Indeed, it’s illogical, but that happens only when I’m not around as her driver.
Now, how can you argue with someone who prefers to do shopping in a mall that offers free parking to senior citizens? More than that, loss aversion can be easily defeated by one, important trick – HHWW (holding hands while walking). Be sure to hold your wife’s hand, whenever you go shopping with her.
It doesn’t matter if it’s the left or right hand, as long as it’s convenient for you to sway her a bit away from the BIG SALE. It appears romantic even after 35 years of marriage (never mind the seven-year engagement before that), but there’s a more compelling reason for doing HHWW. It’s economically smart for you to beat loss aversion.
Rey Elbo is a business consultant specializing in human resources and total quality management as a fused interest. Send feedback to firstname.lastname@example.org or follow him on Facebook, LinkedIn, or Twitter for his random management thoughts on Elbonomics.