Your Loss, My Gain: Two Sides of an Uneven Coin

cherries

I’m sitting in the garden on one of the most glorious summer afternoons that I have ever experienced under the English weather and the thought of eating one of those in-season cherries in a bowl in front of me has never been more tempting. They are bursting with sumptuousness. But then one energetic fly bursting with general eagerness sits on one. The thought of taking a cherry is instantly disgusting. Why is it that something so idyllic could be spoilt by one single blight?

As in many situations, the negative seems to trump the positive.

Two distinguished psychologists Kahneman and Tversky investigated why people concentrate more on the negative than the positive. They developed the theory of “loss aversion” – the idea that people dislike losses to a greater degree than they like gains. If someone gave you £1,000 no strings attached, you will probably be very pleased. But if they took £1,000 away from, you will probably be very upset. This is intuitive. But what Kahneman and Tversky add is that you are likely to be twice as upset if the money was taken away than you would be happy if you got the cash.

The motivation to avoid the bad is stronger than the motivation to pursue the good. For example John Gottman, the well-known expert in marital relations, observed that the long-term success of a relationship depends far more on avoiding the negative than on seeking the positive. He estimated that the success of a relationship requires that good interactions outnumber the bad by at least 5 to 1. Such asymmetries are common across the social domain. We all know that a friendship that takes years to build can be destroyed by a single action.

But what about business?

The recognition that people dislike losses more than they like gains can be advantageously used by firms. Two scholars claim that as a consumer’s psychological state moves from no ownership, partial ownership to complete ownership, her value of the item is increased and so she is more reluctant to lose the item.

Some scholars suggest that ownership doesn’t even have to be actual – it can be mental. In auctions for instance, the highest bidders, realizing that they are the leaders of the auction, begin to think more concretely about possessing the item and therefore become partially attached to it. If someone else enters a higher bid, the consumer who considers him- or herself the highest bidder faces the possibility of losing the item and hence may raise his or her bid.

Thus the emotional attachment that people develop towards items, institutions and indeed any entity, can substantially increase the psychological evaluation the individual places on the entity and this in turn brings more pain to the individual if they were to lose it.

And this makes me wonder – my bowl of cherries with the summer fly on it brought me to much disgust and a loss of my great cherry-eating fantasy. But the reverse for me is not true. A bowl of flies doesn’t become all of a sudden appealing is you added a cherry to it (a gain towards my great cherry-eating fantasy).

The question the marketer should ask is how much am I willing to pay to protect my bowl of summer cherries?

By Dasha Plotnikova