Behaviour Science Bias of the Month: Loss Aversion 

We’ve all heard that it’s easier to remember the bad, rather than the good (like when one bad thing throws off an otherwise great day). Loss Aversion, a behavioural science bias, is the psychological reason why. It states that for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining. 

Applying Loss Aversion in Marketing

When it comes to marketing and advertising, Loss Aversion is incredibly powerful when influencing consumers behaviour in new and interesting ways as this bias can go against our natural instincts. 

For instance, when trying to get new customers to attend a store opening it would be obvious to think perks and rewards would do the trick. Things like a free gift with purchase or a discount on your purchase. 

However, according to the Loss Aversion bias, more influential tactics could be to limit the amount of stock available or create a perk that expires after a certain amount of time. 

The Science Behind Loss Aversion

This is exemplified by a study conducted in 1992 where Daniel Putler noted that when there was a 10% increase in the price of eggs, the demand for eggs, in turn, dropped 7.8% due to the price increase. In contrast, when there was a 10% decrease in the price of eggs, the rise in demand was only 3.3%. This study shows how individuals are influenced by potential losses more than potential savings. In other words, losing money by paying more than the price was before has more of an effect than giving people money savings. 

The reason loss is more powerful than gain is because it is tied to some of our strongest emotions, such as fear, regret and shame. If we overpay for eggs we could look like a fool and hurt our ego. While getting a better price on eggs may make us feel savvy or excited, these emotions linger for a shorter period of time and therefore leave a more shallow imprint. 

The study, published in the journal Motivation and Emotion, found the reason some emotions stay around for longer than others is because of rumination – the tendency to replay or think about negative things over and over. As explained by researcher Saskia Lavrijsen, ‘Rumination is the central determinant of why some emotions last longer than others.’

Now, this isn’t to say you are going to linger for hours or even minutes on overspending on eggs, but that moment may trigger, even if just for a few seconds, a feeling that actually takes up more space in your brain than happy ones. And three are actual evolutionary reasons for that…. 

Our brains have been hardwired through evolution to focus on the negative. Traced back to prehistoric days, primitive man had to be able to register threats to avoid danger and increase survival rates. Individuals who were more attuned to danger (negative stimuli) stayed alive longer and passed on their genes. 

Loss isn’t always negative or sad. It can help us make better decisions, get ahead and find safety. At the end of the day, we want to win, but even better is when we don’t lose. Maybe it really is true - less really is more. 

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