Legendary — and very quotable — baseball coach Sparky Anderson summed up decades of behavioral science research into loss aversion precisely and pithily when he said “Losing hurts twice as bad as winning feels good”. Loss aversion, as many of you will know, is a cornerstone of prospect theory, a groundbreaking idea that emerged from the pioneering work in behavioral economics of academics including psychologists Daniel Kahneman and Amos Tversky. James Montier, an influential economist believes Prospect Theory “…has probably done more to bring psychology into the heart of economic analysis than any other approach.”
Where psychology and economics meet is fertile territory for marketers, so in my book The Business of Choice: Marketing to Consumers’ Instincts I look at the many ways that prospect theory, and particularly loss aversion underpin the choices people make.
One takes us straight back to Sparky Anderson’s quote. Many studies suggest that losses are twice as powerful, psychologically, as gains, showing that Anderson was scientifically on the money. This powerful mechanism is also at the heart of status quo bias that leads people to have a preference for the current state of affairs.
When, as a marketer, you are asking people to change from their normal choice, or adopt a new product you are also asking them to give up something. Here’s an excerpt from The Business of Choice where I cover this…
John Gourville, a Harvard University professor and author of an excellent paper “The Curse of Innovation,”… points out that when marketers try to engineer the behavioral change necessary to get people to try new products, we typically tell people what they might gain, or we emphasize how our product is different and innovative. But we fail to consider and address what people may lose by changing their existing behavior.
Tempting though it may be to focus on what gains your product brings, it’s worth at least thinking about what potential losses — be they practical or emotional — may be gnawing at the gut of the would be chooser and blunting the new riches your product is offering.