Category Archives: economics

lossAversion

Loss Aversion

Word: Loss aversion

Definition: The idea that loss is felt more acutely than gain and as a result, people overwhelmingly choose to avoid loss over acquiring gain. This principle contends with the theory of rational choice.

Reference: The term comes from economics and decision theory and was brought to light by psychologists Daniel Kahneman and Amos Tversky. They demonstrated that even something as simple as a coin toss can evoke aversion to loss. Kahneman discussed this concept in recent interviews describing, “In my classes, I say: ‘I’m going to toss a coin, and if it’s tails, you lose $10. How much would you have to gain on winning in order for this gamble to be acceptable to you? People want more than $20 before it is acceptable. And now I’ve been doing the same thing with executives or very rich people, asking about tossing a coin and losing $10,000 if it’s tails. And they want $20,000 before they’ll take the gamble.”

Essentially, people are willing to forego winning large amounts of money because the fear of losing, even when the amount is considerably less, is too consuming.

Thoughts/Questions: Designers use loss aversion in a variety of ways to evoke such feelings on their users. A great example is canceling subscriptions or services. If a users tries to delete her Facebook account she is shown images of her friends with the words “[Friend’s name] will miss you!” Here, Facebook is trying to play into loss aversion by showing the user what she will be missing by leaving the service.

Everyone wants to be win, but we would much rather just not lose!