LOSS AVERSION

I regard Daniel Kahneman's discovery of "loss aversion" to be one of the great insights of the 20th century. Some thirty years ago he and his fellow psychologist did the experiments that showed people prefer not to lose more than they wish to gain! That is, we will refuse to give up a dollar we have when told we will later be paid $5! Evidently the need or desire to retain something we now have is greater than the prospect of trading that possession for something more later.

This insight and others that were developed from it were instrumental in the creation of "behavioral economics." Indeed, Kahneman was eventually awarded the Nobel in Economics. The old model of "rational choice" has been superseded almost entirely by the "behavioral" model, in which economic choices are governed by my feelings, fears, wishes, and so on: all the "irrational" forces that characterize our temperaments and social situations.

I'm convinced loss aversion--in a variety of subtle forms--characterizes most of our decisions, especially the ones we find trapping us and others in limiting or destructive behaviors and forms of life. Like me you've likely noticed friends clinging to what they have rather than risking change. Because "risk" is the obverse of loss. When I got divorced some 40yrs ago I discovered that the obstacle to change is my having to admit that, if I change now, and the change is for the better, then I've "lost" all the time devoted to my earlier state. So we resist change because we have to face this imagined loss: all the time we've devoted to the condition we're in now.

That's why it so often requires a crisis to bring about any change, both personally and socially. The existing situation has to break down--as with a divorce or other disaster--so that we're forced to change. Of course, we can still regret it. Most of the time people cling to the remembered--or imagined--past rather than facing forward.

There's a really remarkable form of loss aversion that's been documented in a number of recent studies, and this one has even more significant political implications. It's been found that, when people have suffered for some time from inequality--discrimination, job loss, income disparity--they become less willing to support redistribution. It's as if, being a victim of policies or circumstances, I desire that others continue to suffer like me. Apparently we're averse even to losing our status as victims!

This is really something to think about...