Existential Psychology

Loss Aversion

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Loss aversion means that you are more negatively affected by the prospect of losing something than you are positively affected by the prospect of gaining something. You might have an image in your heard of a miserly hoarder jealously guarding worthless possessions, but loss aversion is something that influences everyone.

For example, most people who are asked how much they would need to win to have a 50% chance of losing $100 say they would need to win $200. In another study, students were given mugs and then asked to go into negotiations with other students who hadn’t gotten any. On average, the owners were willing to part with their mugs for around twice the price that the prospective buyers were willing to pay for them.

This attitude starts very young. Everyone has seen what happens when you take a toy away from a child, even if she was paying no attention to it moments before. The toy becomes the center of her world and getting it back her primary mission. It makes sense that the evolutionary process went in the direction of aversion to loss instead of a whimsical, carefree attitude because the natural world was one of scarcity, which meant that the most desired things were usually also the most rare. Survival meant holding on to them and not letting them be taken from us without a fight.

In our world scarcity is not as much of an issue anymore. We have way too many options in too many domains. These days loss aversion can work against us just as easily as for us, because we are tempted to hold on to something that doesn’t serve us as well as we believe.

A reason to think about loss aversion in your life is that the general attitude can be applied in an existential context to explain one barrier to growth and self-actualization. When you make the choice to grow, what you are really choosing on a fundamental level is to say goodbye to the familiar, to the person you know right now. You become who you really are through the process of change. This distant ‘you’  is currently ephemeral and the journey to get there is uncertain. It seems obvious from a risk aversion standpoint why so many people stay stuck in neutral all their lives. They are hesitant to part with the Selves they already know.

You might be more inclined to face the unknown and make the decision for growth with the recognition that you probably overvalue the way things currently are. It’s easier to let go of your image of yourself when you realize that image is distorted. Becoming a bit more open in your thinking about your internal change is highly desirable in our humanistic Western world, a world uniquely suited to self-actualization with its emphasis on individuality, its plethora of choices and information, and its freedoms of thought, speech, and action.

In such a world self-actualization is the primary goal of the human being, a goal that has run through humanistic thought for thousands of years. It’s a shame that our evolutionary hardwiring sometimes works against us. But we can use our higher reason, the parts of our brains that make us uniquely human, to test the validity of our emotional reactions once in awhile. Loss aversion still has a lot of value for human survival, and really comes down to the simple maxim that having something is better than having nothing. But if your perspective of the object in question is distorted you will be at a disadvantage in your dealings with the world, and this is a loss you should be highly aversive towards.