Pleasure or pain?

“As humans, we are innately averse to losing what we have.”

Do you ever struggle to “kill your darlings?”

If you’re human like me, the answer’s probably a hard YES.?

Maybe it’s that new job you hate, deep down, but worked so hard to get. Or those underperforming stocks that might (but probably won’t) pick up if you hold on “just a little bit longer…”

In behavioral economics, this is referred to as loss aversion; which states that for most of us: “Losses are weighted subjectively more than gains for the same objective magnitude.”?

In plain English, it means that we humans tend to attribute MORE psychological value to the things we lose than the things we gain—even when they are quantifiably worth the same amount.

Let me illustrate: would you rather win $1,000? Or not lose $1,000 from your bank account?

How about when I up the stakes…to $100,000?

If you answered “not lose $100,000,” you’ve got plenty of company.?

According to studies by psychologists Amos Tversky and Daniel Kahneman, we feel the pain of loss roughly twice as much as we feel the pleasure of an equivalent gain, and this loss aversion is a key driver of so many poor decisions in the business world today.

Poor Decision-Making

“But who’s making these poor decisions?” you might be wondering, and quite rightfully so—it turns out that the loss aversion instinct was programmed into us so long ago that we’re often unaware that we’re doing it.

It’s like this: every time you hear something potentially threatening (like a whiff of change!) one of your brain’s oldest areas (the amygdala) springs to life.?

Long, long before you can start to weigh up the pros and cons of the change at hand (using your “logical” brain regions), your amygdala has already asked: “What am I going to lose?“

So in answer to your question, have you ever:

• Bought something in a “last chance” sale?
• Told your teammates to “stick to what we know?”
• Struggled to sell something that you never use, even when offered a higher price than you paid for it?

Maybe these examples don’t relate to you specifically, but I’m sure they’ve got you thinking of a similar personal experience!

But There’s More…

To be specific, Tversky and Kahneman identified three ways that loss aversion manifests in real life: risk aversion, the status quo bias, and the endowment effect.

If you’re not yet convinced that the phenomenon can impact your leadership decisions, take a look at these:

• Risk aversion is the tendency to prefer outcomes that are less uncertain than those which are highly uncertain, even if we stand to gain more from the latter. For example, deciding not to invest in a new IT system even though your sector is probably heading that way.
• Status quo bias is our preference for “keeping things as they are,” like Kodak (in a word!), and
• The endowment effect describes how we value specific goods that we already own much more highly than identical goods that we don’t. This brings us full circle to the $100,000 I offered you earlier.

What Can You Do About It?

Loss aversion is a hard-wired instinct, driven by our brain’s oldest regions plus years and years of evolution.?

It’s rooted in sheer survival and may serve us well in real, physical life-or-death situations, but those aren’t a dime a dozen in today’s workplaces!

Here are three tips to help you leverage your new knowledge as a leader:

1. Breathe. Don’t panic and make hasty decisions when you start to feel uncomfortable. Take a deep breath, count to ten (at the very least!), and let your amygdala calm down. This can give you a chance to overcome your primal loss aversion instinct, or at least see around the corner from it.
2. Frame your proposals. If you’re delivering news that could potentially rattle your colleagues, it’s all in the way you frame it. Try introducing that change, restructure, or otherwise scary news to emphasize the potential gains of what is happening, and you won’t have to struggle against loss aversion in your colleagues.
3. Put it in perspective. If it’s you that’s struggling with potential loss, ask yourself what the worst-case scenario could possibly be. If this sounds logical, that’s because it is. And that’s precisely the brain region you want to activate!

If you can do that successfully this week, please make sure you tell me all about it below.

— Govert

1. I share regular leadership and coaching tips, articles, and news on my LinkedIn every few days.?Send me a DM!
2. Want to start leading with Professional Closeness? Download my book?The Power of Professional Closeness?here.

Govert van Sandwijk?is a seasoned international strategy facilitator, leadership development consultant, author, and executive coach who has delivered high-impact business, people management, and leadership development programs to over 5000 leaders across 40 countries. His first book, The Power of Professional Closeness, is an Amazon #1 Bestseller and shares the strategies that have made his approach so successful. Download?Helping Leaders Navigate, his free guide to using professional closeness to improve your life and organization at?https://timetogrowglobal.com.