Numerous studies have shown that people feel losses more deeply than gains of the same value (Kahneman and Tversky 1979, Tversky and Kahneman 1991).
Goldberg and von Nitzsch (1999) pages 97-98

A friend of mine, we’ll call him Joe so I can feel free to ridicule him publicly, complained to me the other day about a kit he bought called the “Robot Builder’s Bonanza”—it’s a beginning robotics kit. He bought it from some off brand electronics site for around $20. So he thought.

The kit arrived, but after checking his bank statements Joe noticed the charge had gone through for $31.02.

I asked him what he did about it. He e-mailed the company about the problem, and got a bullshit boilerplate response back. He did a few backflips, I guess by looking at the domain’s whois information to find a number, and eventually got on the line with someone at the company who, he reported, was rude and told him to piss off, in not so many words.

Joe is nothing if not tenacious. He called his credit card company to initiate a chargeback for the transaction. Since it wasn’t cut and dry—he had received the thing he bought, he was just charged the wrong price for it—he had to download a form, fill it out and fax in a signed copy.

After about three and a half weeks he got the difference of $11.14 refunded.

I know this because as Joe was relating this story I was totally fascinated, and I asked him for more and more detail. I knew this was a textbook case of the Loss Aversion Bias, and I wanted the full scoop to share with you.

He spent 4 hours to get an $11 refund

In all, Joe had gone through considerable effort to find an e-mail address, all the relevant transaction data, even more hassle to find a number and call it, waited on the phone with his credit card company for almost an hour, then printed, filled out, and faxed a form. All told, he had spent four hours or so over the course of a few days getting his refund. His $11 refund.

So I proposed a business deal for Joe. I said to him, listen, I have these bitchy customer service people I don’t want to deal with. You’ll have to do a little a sniffing to find the right people to contact. You’ll need to call them, figure out some paper work they’ll need, and send it all in. Shouldn’t take more than half a day’s work, I said. I’ll give you $11 to do it.

For some reason, Joe told me to fuck off.

Why Loss Aversion Bias is Dangerous

Loss aversion is a error in our brains that makes us fight like a rabid animal to avoid a small loss, while chewing our cud stupidly when it comes to getting what we want. Data from Kahneman and Tversky suggests we prefer avoiding loss about twice as much as acquiring gains.

That’s a trap.

It’s counter productive because it’s rare to find a slam dunk in life. You can find a job that’s a little better—in fact, getting better job often leads to getting an even better job. You can achieve “100% better.” The problem is that you’ll rarely achieve 100% better in one move. That’s why loss aversion tends to “stick” you exactly where you are unless you get a lucky break with a job that is twice as good.

Consider also that whatever you have, you’ll work twice as hard to keep it than you would to acquire it in the first place. If your husband is sort of a shit, you’ll fight to “make it work.” If you had just started dating him though, you’d only work half that hard to get the same guy. Again, loss aversion tends to “stick” you exactly where you are.

How to Short Circuit the Loss Aversion Bias

When you realize you’re choosing between something you’re attached to and something that’s potentially better, the easiest way to short circuit the loss aversion bias is to turn it on its head.

  • To Joe it made perfect sense to spend the time and energy to make sure he didn’t unfairly lose his $11.14, but when I reversed the question and asked him to spend equivalent time and energy in order to gain $11, he knew intuitively that it was a crappy deal.
  • If you’re working massive overtime to get a promotion, ask yourself: would I work a 40 hour week at a job paying what I make now, plus another 40 hours a week without pay for a whole year in order to make 10% more than I make now?
  • If you’re with someone who doesn’t make your heart sing, ask yourself: would I fight to acquire the companionship of a person who I know is dull and and kind of annoying?

Can you think of a situation where reversing your thinking would make it clear that you’re fighting tooth and nail for a crappy deal?