The Art of Thinking Clearly: Better Thinking, Better Decisions

See also False Causality (ch.37); Survivorship Bias (ch. 1)

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32
WHY EVIL STRIKES HARDER THAN GOOD
Loss Aversion
On a scale of 1 to 10, how good do you feel today? Now consider what would
bring you up to a perfect 10. That vacation in the Caribbean you’ve always
dreamed of? A step up the career ladder maybe? Next question: what would
make you drop down by the same number of points? Paralysis, Alzheimer’s,
cancer, depression, war, hunger, torture, financial ruin, damage to your
reputation, losing your best friend, your children getting kidnapped, blindness,
death? The long list of possibilities makes us realise just how many obstacles to
happiness exist; in short, there are more bad things than good – and they are far
more consequential.
In our evolutionary past, this was even more the case. One stupid mistake and
you were dead. Everything could lead to your rapid departure from the game of
life – carelessness on the hunt, an inflamed tendon, exclusion from the group and
so on. People who were reckless or gung-ho died before they could pass their
genes on to the next generation. Those who remained, the cautious, survived. We
are their descendants.
So, no wonder we fear loss more than we value gain. Losing $100 costs you a
greater amount of happiness than the delight you would feel if I gave you $100. In
fact, it has been proven that, emotionally, a loss ‘weighs’ about twice that of a
similar gain. Social scientists call this 
loss aversion
.
For this reason, if you want to convince someone about something, don’t focus
on the advantages; instead highlight how it helps them dodge the disadvantages.
Here is an example from a campaign promoting breast self-examination (BSE):
two different leaflets were handed out to women. Pamphlet A urged: ‘Research
shows that women who 
do
BSE have an 
increased
chance of finding a tumour in
the early, more treatable state of the disease.’ Pamphlet B said: ‘Research shows
that women who do 
not do
BSE have a 
decreased
chance of finding a tumour in
the early, more treatable state of the disease.’ The study revealed that pamphlet B
(written in a ‘loss-frame’) generated significantly more awareness and BSE
behaviour than pamphlet A (written in a ‘gain-frame’).

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The fear of losing something motivates people more than the prospect of
gaining something of equal value. Suppose your business is home insulation.
The most effective way of encouraging customers to purchase your product is to
tell them how much money they are losing without insulation – as opposed to
how much money they would save with it, even though the amount is exactly the
same.
This type of aversion is also found on the stock market, where investors tend to
simply ignore losses on paper. After all, an unrealised loss isn’t as painful as a
realised one. So they sit on the stock, even if the chance of recovery is small and
the probability of further decline is large. I once met a man, a multimillionaire, who
was terribly upset because he had lost a $100 bill. What a waste of emotion! I
pointed out that the value of his portfolio fluctuated by at least $100 every second.
Management gurus push employees in large companies to be bolder and more
entrepreneurial. The reality is: employees tend to be risk-averse. From their
perspective, this aversion makes perfect sense: why risk something that brings
them, at best, a nice bonus, and at worst, a pink slip? The downside is larger than
the upside. In almost all companies and situations, safeguarding your career
trumps any potential reward. So, if you’ve been scratching your head about the
lack of risk-taking among your employees, you now know why. (However, if
employees do take big risks, it is often when they can hide behind group
decisions. Learn more in chapter 33 on 
social loafing.
)
We can’t fight it: evil is more powerful and more plentiful than good. We are
more sensitive to negative than to positive things. On the street, scary faces stand
out more than smiling ones. We remember bad behaviour longer than good –
except, of course, when it comes to ourselves.