Loss Aversion

I received a thought-provoking post below from a reader which highlights a very important aspect of human nature.

A match in squash is usually a best of 5 games. There was a time in my squash that I lost consecutive matches with results 2-3. In almost all of them, I had a 2-0 lead. Needless to say, those losses were devastating. It even came to a point where I would win the first 2 games and would prepare mentally for a loss (which of course didn’t help any cause).

During the end of that season, I went to a game in which I lost 2-3 but won the 3rd and 4th games. This means my opponent had a 2-0 lead, I came back to make it 2-2 and then he won the 5th. Surprisingly, this loss was not at all devastating. In fact, I came out of it much happier. The question is: “A 3-2 loss is a 3-2 loss. So why does the order of games matter in our minds?”

I think the saying “all is well that ends well” has something to do with it. We remember more vividly the sequence of events towards the end of any experience. If we go uphill in the beginning and downhill towards the end, we tend to remember the feeling of losing even if our final level is equal or even a ‘little’ higher than our starting point. So when I lost 2-3 but won the 3rd and 4th games, my mind remembered the loss but also found solace in the ‘upward’ feeling of going from 0-2 to 2-2.

There is another aspect of this problem directly related to human nature and known as “loss aversion”. Loss aversion refers to our tendency to prefer avoiding losses over obtaining gains. Although they feel equal in theory but according to scientists, a gain of 50$ brings lesser amount of joy as compared to the pain of losing 50$, say in a parking ticket.

You can see the examples everywhere. The happiness of parents to whom a new baby is born is nowhere near the grief of parents whose baby is taken away by fate from them. Or purchasing a new mobile phone as compared to having the phone stolen from you.

So if we are winning by a lead of 2-0, we feel the win closer to us. Seeing it go away after the opponent comes back causes some serious pain. However, if we are 2-0 down, we have ‘nothing to lose’ and even if we get defeated after equalizing the score to 2-2, our mind tells us that it was more of a good fight and less of a ‘losing a game I almost had in my pocket’.

Probably we cannot do much about it since reprogramming our nature is largely out of our control. However, one thing we can implement is to be grateful every single day for what we have. The best strategy to do that is to keep a gratitude journal.

For a person under normal circumstances, what they have is much more than what they lose. So the sheer quantity of stuff we are grateful for — written over a period of time — can put us in an established habit of focusing only on the positive side. The perpetual positive mode would dampen the loss aversion. A loss would still matter but not as much.

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