'Little dival' from sofeminine.co.uk Discussion Boards 01/07
“I've been with my boyfriend nearly two years. Everything was perfect for the first year, he treated me like a princess, we didn't argue and he was so considerate of me. I thought I'd found someone I would spend the rest of my life with. Until last July. I came back off a holiday with my friends and he told me he wasn't sure if he wanted to be with me anymore.... He treats me like dirt, overnight he completely changed. He now makes plans with me and drops me at the very last minute. I cry about it everyday but I love him so much I just can't let go.
'Frances' from answers.yahoo.com 07/011
“I love modelling but lately its been getting harder and harder to go for it ... I have a lil girl .. just need advise .. should I give up??”
Answerer 1: “NEVER EVER GIVE UP! It's something you want, why not try to achieve it! If you can dream it, you CAN do it and girl, all you need is determination and hard work.”
Answerer 2: “Nope. Never. If you do, you’re just letting yourself down and you will regret for the rest of your life.”
The above extracts from online help forums are good examples of when a situation arises that makes us question whether we should drop something, give it up and cut our losses. Of course, whether this would be a good idea in either or both of these examples is unanswerable, as we only have a snippet of information. Although these extracts can't answer that specific question, what they do tell us is that it seems apparent that a lot of the time we are averse to letting go of something and giving up on it. We seem too often to be very protective and avoidant of losing something and moving on; relationships, career aspirations, financial investments. 'Little dival' can't seem to accept her relationship is a lost cause and neither 'answerer ' 1 or 2 seem willing to tell 'Frances' she should accept defeat and move on. This blog discusses our tendency to 'hang on' and not accept a loss when it is staring us in the face.
A major reason for this tendency to opt to stick in things is that we are naturally loss averse. We really don't like the idea of losing. Whether this has arisen from an inherited behavioural trait that has somehow proven to be adaptive in the past, or a learnt norm from those around us, a loss is something we are biased to avoid. The simplest way to test whether we avoid losses is to offer individuals monetary gambles. In these types of experiments participants are given a small sum of money and then asked to decide if they are happy to gamble on an offer/ bet (e.g. if you accept this bet you will have a 50% chance of doubling your money, but also a 50% chance of losing). Rationally speaking, if we weren't biased towards avoiding loss, we should be fairly happy to take the above offer. The odds are equal and the probability of a loss is exactly the same as a gain – it is a level playing field.
But data collected by Gachter et al. 2010, from 360 members of the public using similar tasks, shows we aren't happy to. Even if you swing it in the favour of the participant (60% chance of doubling your money and 40% chance of losing), loss aversion kicks in and a lot of participants won't accept the offer. It appears as though we possess a systematic bias to be wary of losses and when even the whiff of a potential loss starts to loom we avoid it like the plague. We daren't risk loss even when the odds are in our favour.
A classic study that underlines the power of loss aversion is reported by Daniel Kahneman and colleagues. Also known for showing what has been termed 'the endowment effect', these studies show that once we feel as though we own something, we value it highly and parting with it becomes a lot more difficult. As part of the study half of participants were given a coffee mug as a gift by the researcher (the mug condition) and half were not (no mug condition). Handing mugs out allowed the researchers to examine whether having owned a pretty crappy mug for just even a few moments would result in participants wanting to avoid losing it. After receiving the mug participants in the mug condition were asked what was the absolute minimum amount of money they would accept to part with the mug. In the no mug condition participants were instead shown that very same mug and asked how much they thought it was worth.
The studies show a big difference between the two groups’ valuations of the mug. The mug condition now valued the mug at over $7, as opposed to the no mug conditions value of $2.80. These findings are explained through a loss aversion account, whereby the thought of losing something as simple as a mug causes participants to pump up it's value. Once we have something the thought of losing it is powerful and we don't like it. These experiments show that losses and gains, even when exactly the same in terms of what is on offer (a mug), have different weighting in our judgements. The value and importance of a loss looms much larger than a similar gain.
The effect has also been replicated with all sorts of other objects and belongings. Furthermore, other studies by Saqib et al. (2010) have suggested that the more committed we are to something, the greater the loss aversion we display. Similarly, risk aversion also appears to vary with time, whereby the longer we have owned something, the stronger the risk aversion we express towards losing it. Having dedicated many hours to a failing project can make pulling the plug on it very difficult.
We have all experienced this kind of thing. I recently spent a fair few hours working on writing up an experiment. During this it became apparent there were weaknesses with the experiment and that the write up was a bad idea. Yet, it was tough to accept I had lost those hours and I then spent even longer considering whether I should go back to the drawing board. Perhaps if the weaknesses had become apparent earlier on the decision would have been easier. This is where the problem with psychological investment and loss aversion lies; whether I spotted the weaknesses before or after many hours of writing, they exist and are just as damaging to the experiment. But because of how invested I felt in the project, cutting loose and accepting a loss was probably that bit harder.
Aside from my fairly dull example and queries typed up onto internet help forums, loss aversion can explain numerous examples of bad and irrational decision making. Loss looms large and the deeper we get in, the less likely we are to accept that cutting our losses and throwing the towel in might be a good thing. Gamblers who continue to try and win back their losses in casinos, so they don't have to leave on a loss. Poor investments that are falling in value. Staying far too long in a war that can't be won. Continuing to believe in a project that although you have invested much time in, just isn't working. All of these are examples in which accepting a loss in the present is far better for the future. Yet, we often don't, as we try and avoid having to call in a loss in the near future. Ironically, by doing this we are often delaying the inevitable and in some cases setting ourselves up for a much bigger loss further along the line.
An interesting question is how this bias can take a hold of us. Quite often we see this irrational behaviour in others, but we seem blind to it in ourselves. Two lines of research provide some explanation. Research suggests that when imagining how bad one will feel after a loss, we have a tendency to overestimate. In a 2006 study, Kermer et al. had participants take part in a gambling task and controlled whether participants won or lost $5 from money that they had been given at the start of the session. Prior to gambling some participants were asked how they would feel if they lost and then after losing the majority of their money (naughty experimenters) they rated how they felt.
Participants’ predictions were significantly worse than how they actually felt. The authors suggest this can happen because we underestimate how resilient we really are and how easily we can get over losses and move on. If we can start to realise that a loss is unlikely to be the end of the world, maybe we would be more willing to pull the plug when needed.
A final study underlines how becoming invested in something can skew the way we think about it and encourage us not to change plans. Knox and Inkster (1968) report a clever experiment in which they approached gamblers at a horse racing event. They showed that having made a bet on a horse altered perceptions of how likely the horse would be to win. Compared to patrons that were about to bet on a horse, those that had recently invested in their horse were far more confident of it bringing home the money.
What does this mean outside of horses and gambling? It appears to suggest that the more we psychologically or financially invest in something, the more we believe it will turn out alright. It looks as though we can end up ignoring damming evidence. That being said, removing oneself from psychological investment in something and trying to objectively assess whether we are being biased and unnecessarily loss averse may be a lot easier said than done. Although, awareness of these factors might at least help us check we are thinking things through sensibly and making decisions as rationally as possible. Who knows? You've got to hope reading this blog was of some benefit; otherwise you've just lost 15 minutes of your life reading this and will never get it back.
Application
Think rationally.
Rats deserting sinking ships are clever.
Make loss aversion work for you. Sign up to internet sites that fine you money if you fail to achieve a goal or aim you have set yourself. The thought of a loss might be enough to help you make something of your life.
Not enjoying a film or date? Cut your losses and bail on it half way through. It is for the best.
Posts
