The Cost of Playing Not to Lose



Winning is better than losing. But is NOT losing better than winning? Sometimes we act like it is.


Golfing for dollars

Let’s talk about golfers. A rational golfer should try just as hard to make a putt for a birdie (1 under par) as she would to make that same putt to avoid a bogey (1 over par). In both cases, the penalty for a miss is exactly the same – one stroke.


But golfers have lizard brains telling them that having a negative experience is worse than not having a positive experience even if the result is the same. So they try harder and perform better when avoiding a bogey than they do when putting for a birdie.


Is it a big deal? Researchers calculate that this type of decision-making bias costs the average professional golfer about one stroke during a 72-hole tournament. For the top 20 golfers, that translates to a combined loss of about $1.2 million in prize money a year.


Letting your lizard brain do your putting is a bad idea!


Lowering Expectations

Lest you think I am picking on golfers, the rest of us are just as irrational. Imagine I tell you that I will flip a coin and you can bet on the outcome: if it is tails you lose $100, but if it is heads you win $150. Would you take this bet?


You should, because the expected value is positive - the average outcome is $125 - higher than what you started with. However, studies show that most people would rather avoid the potential loss and not take the bet.


Behavioral scientists call this behavior Loss Aversion and it is the core bias behind many of the Invisible Mind Blocks covered here in the past, such as the Endowment Effect, the Negativity Bias, and the Status Quo Bias. Your primitive subconscious lizard brain wants to keep you safe and so it gives you the impulse to avoid danger whenever possible.


Incentivize by gain or by loss?

A four week study of factory workers in China offered an incentive to two groups of employees for reaching a productivity benchmark. One group was given 80 renminbi (Chinese unit of currency) for each of the four weeks they met the goal. The other group was given 320 renminbi at the beginning and had 80 taken away each week they missed the target.


Both incentives were effective but the second group performed better. Again, the subconscious desire to avoid the loss was greater than the incentive to gain the same amount.


Fighting against change

Have you noticed how difficult it can be for some organizations to change? Suppose a new process is proposed that will help the organization as a whole but is perceived by a few individuals as detrimental to them. Those people will fight harder against the change than the potential winners fight for it, similar to the golfer trying harder to avoid a bogey.


That loud resistance can keep organizations from making change when it is needed for growth and positive performance. The resistance is the squeaky wheel and the status quo wins, but the business loses.


It's gonna cost you!

Marketers who know this will frame their advertising copy around the prospect of what you will lose if you do not purchase their product. Instead of “save $50 per month on gas”, they will say, “Not using our service is costing you $50 every month.”


They may also give you a free trial or sample which will be more difficult to give up than it would have been to not use in the first place. (The Endowment Effect comes into play here as well, which is the phenomenon where we put a higher value on things we own than on things we do not own.)


Be aware but not afraid

What can we do about this aversion to losing? When making assessments, try to calculate the actual value of all options rather than just going with your gut feeling, which is often your lizard telling you to be afraid.


We can’t always beat this bias against losing, but by taking a moment to consider the real costs and benefits, we can take away some of its influence.


Think well and be well.


- Steve.

 

Copyright 2020 Steve Haffner    (502) 419-4272

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