Loss Aversion: It's Not Just For Money Anymore


Loss aversion is one major reason we're irrational when it comes to money. Humans tend to hate losing things more than they like gaining things. Unexpectedly losing $100 hurts more than unexpectedly finding $100 delights. Many people are too anxious to invest their money, for fear of losing it in a stock market downturn, even though the expected return from stock market investments over the long term is far more than the expected return from sitting on your money in a bank account. When you look at the numbers, it's irresponsible not to invest money you are saving for long-term goals such as retirement, yet it can be really hard to feel that way. Instead, it feels irresponsible to take a gamble.

Loss aversion isn't just about money. It can inform the way we think about all sorts of things.

Politicians exploit voters' loss aversion by playing up fear of the hell that awaits us if the other guy wins, and this is very effective. In last Sunday's debates, many of the town hall questions had an undercurrent of fear rather than hope. It wasn't "What will you give us?" but "How will you protect me from something scary?" Scrolling through the online list of submitted questions prior to the debate, I saw voters express fear of losing rights, jobs, health insurance, and cash money (in the form of taxes). I know that the U.S. has, in the past, created new positive policies, like creating the post office (1775), the Library of Congress (1800), the National Park System (1916), the Social Security Administration (1935), and Medicare (1965). I can't imagine these things being enacted today, when it seems we are all in a defensive crouch. Am I just jaded? Is this what politics has always felt like?

It also seems to me that a good deal of racist, sexist, and homophobic reasoning comes down to loss aversion; to the fear that, somehow, members of the minority are taking something away from members of the majority. When I was in high school, it was common for white college applicants to express bitterness about Affirmative Action admissions policies, feeling that Black and Latinx students were taking "their" place at college. (Never mind that white students had been taking more than their fair share of spaces on the college roster for over a century.) But at least spots in a college class is a limited resource. Many white people also seem to react defensively, out of a sense of "something is being taken away," when presented with seemingly obvious concepts like "Black lives matter." When Black protestors assert their own right to life, liberty, and the pursuit of happiness, what is possibly being taken away from white people? Nothing! Except, maybe, the ability to, in certain circumstances, murder others with no consequence. WE SHOULDN'T HAVE THAT TO BEGIN WITH.

This kind of defensiveness also seems to be at the root of a lot of misogyny. In her recent book Shrill, Lindy West talked a lot about misogynist internet trolling--something she's unfortunately had a lot of experience with--and found certain common themes among trolls. They were usually deeply unhappy, felt stagnant in their lives, perhaps felt emasculated due to the lack of things men "should" have (good jobs, sex, families). Somehow they came to blame women for these problems. They would send nasty messages to confident-seeming women in order to take them down a peg. They felt that these women were enjoying benefits that should rightfully have gone to them. From my perspective as a woman who has received trolly messages but can't imagine the mindset of sending one, this reads as "entitlement." But the flip side of entitlement is loss aversion. If you feel entitled to something, and you don't get it, you flip out harder than anyone. It's not simply failing to get something (you may or may not have had any right to); it's equivalent to losing something you already believed you had.

To me, one of the most nonsensical examples of this kind of thinking is the anti-immigration movement in the U.S. As a country, we aren't suffering from excessive population density, and our birth rate isn't keeping up with replacement (as of 2012, 1.88 births per woman). Immigration is the way we grow. Immigrants are less likely to commit crimes than the native population. Their unemployment rate is lower. This just makes sense to me; immigrants are a self-selected group of people who want to be in the country, who have hope and plans and goals, and who are willing to face hardship to meet those goals. You don't get lazy immigrants because lazy people stay where they are.

Actually, people who are willing to totally uproot their lives and emigrate are a classic example of people who don't let loss aversion control them. They are willing to risk everything they have for the opportunity to build something brand-new. These are not jaded, lazy armchair commentators like me. And this makes them exactly the people we want to surround and inspire us.

The Opposite of Loss Aversion
To break out of these destructive modes of thinking, we need to get into an "abundance mindset"--to believe that there is enough to go around. That you don't have to elbow your way through life, stomping on others, to make sure you "get yours."

This can seem naive at first. Of course we can all think of situations where there literally isn't enough to go around. There's a limited amount of fossil fuels in the Earth. Not everyone can have a pet zebra. You can't please the people who want to bring their dogs on Amtrak and the people whose idea of hell is an Amtrak full of dogs.

But in many cases, we are the ones creating the feeling of scarcity. Many of the things that are most important to us are not limited resources. "There's not enough rights to go around" doesn't make sense. Status and wealth are human-created concepts; there's nothing stopping us from making a bigger pie. Love and knowledge grow when they are shared.

How can we improve our lives, and the lives of others, by trusting abundance rather than grasping onto scarcity?


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