The Psychology of Loss Aversion

An article in Psychology Today discusses loss aversion, and how regulating emotion and taking a different perspective can reduce it—and “help people overcome potentially disadvantageous decision biases.”

Loss aversion, the article explains, is an expression of fear, which is why humans focus on negative events more than on positive ones. This shows up in consumer behavior, it says, in that price increases will lead to a great percentage drop in demand than price decreases will lead to increased demand. It also applies, according to the article, to “the emotional pain of scaling back.” But being wealthy doesn’t help, it says. “For rich people, the pain of losing his or her fortune exceeds the emotional gain of getting additional wealth,” which only serves to increase anxiety and vulnerability.

In human psychology, loss aversion reflects a general bias against change, the article says, adding, “Being aware of it might help (forewarned is forearmed).” By knowing what your biases are and changing perspective, it suggests, “you can gain clarity to make you less vulnerable.”