Loss Aversion

Give me $20, I am moderately pleased. If I lose $20, I am mad as hell.

That - in a nutshell - is the concept of loss aversion. It’s one of my favorite ideas from the field of behavioral economics and I see it play out every day in the flow of human events, large and small.

To explain a little further, loss aversion describes how we as emotional nutjobs react differently when something is gained versus when lost. In the example above, you would think that $20 is $20….and we would react equally in each situation. But the reality is that losing something in our possession carries a supercharged emotional resonance. It makes us mad, alarmed, bitter, and casting about for villains.

Parents know this all too well. If I give my daughter a teddy bear, she would be excited, happy. If she lost her favorite teddy bear after years, it’s a world-ending trauma of the first order. The emotional reaction is off the charts.

Gaining something is nice. Losing something hurts.

This simple dynamic explains so much of what’s going on across our society. Wherever you look one can see examples of loss aversion amplifying the schisms of our politics, our culture, and our relationships to one another. Underneath almost everything - someone is reacting to the perception that they are losing.

Take the following examples:

Tech-Bros & Billionaires:  Pick one - Bezos, Musk, Zuckerberg, Altman, Ellison, Thiel.  Something seems to happen when these dudes cross over into the realm of the stupidly rich.  First, they start to believe that they are actually worth that amount of money. Second, they begin to think they single-handedly earned all that money. And third, they interpret any attempt to curb obscene amounts of wealth is a direct attack on their self-perceived value as a human being.  They are faced with not only losing money, but losing stature, status, and social standing.  They feel compelled to push back, even though they will be fine. Just fine.

White-supremacists: The whole, ridiculous notion of white supremacy rests on a foundation of resentment and perceived victimhood. We can see recent attacks on DEI, minorities, immigrants, and foreign powers as over-reactions to what some view as a change in the natural world order. They see their place - supposedly one of cultural and moral preeminence - under attack by advancements in equal rights and diversity. The feel like they are losing something…when most often they will be the beneficiaries of treating people fairly.

And this is an important point. Loss aversion doesn’t mean you actually are losing something. It can simply be the perception of loss that triggers a person. You’ll survive, maybe even flourish. But our animal brains push the panic button at the mere hint of loss…

Righteous Religious Sociopaths:  An essay for another time, but the religious influence on the United States has always been both a blessing and a curse.  The central role it has played on our history is undeniable. For decades you couldn’t be a viable national politician in this country without an implicit endorsement from Billy Graham.  A certain flavor of religious zealot - those who crave political power rather than serving their flock - exacerbates this raw wound. But what we are seeing as church attendance rates decline and scandal after scandal eats away at the moral authority of religious institutions…is the central role of the religious leader diminishing.  And they know it….they know their waning influence is an existential threat - a loss. So they double-down on inflicting bizarre dogma on society at large in an attempt to lock-in their preeminence.

Environmentalists: I’ve always noticed that many of the communities with the most powerful environmental movements are located in beautiful parts of the country. It makes sense, really. When an important part of your life is threatened or destroyed, you react and fight back. Places like Austin, San Francisco, the Redwoods, the Grand Canyon, the Pacific Northwest, or even your small local park. When neighbors and locals lose someplace they love, they mobilize, organize, and politicize. Virtually every conservation and environmental movement started with someone angry about losing a loved natural resource.

Interestingly, this is one of the challenges of the fight against global warming. Because climate change is such a systemic, international, and slow-burning phenomenon, it’s hard to mobilize a political constituency because people mostly don’t perceive the loss…yet.

Baby Boomers: If ever there was a more entitled, more gifted generation in the history of the world, it is the Baby Boomers of the United States. They had virtually a world of resources and opportunities handed to them - and boy do they fight to keep it. Try and raise taxes to pay for better schools or to help the homeless or to protect the environment, and most likely you’ll find a shit-ton of senior citizens fighting tooth and nail against you. Nothing dominates our politics more than a voting bloc of octogenarians who fear they may lose the gravy train they stumbled into.

The Fossil Fuel Industry: Observe the vehement pushback to electric vehicles, wind power, building electrification, solar power, and more in this country. Oil, coal, and natural gas executives recognize that their long-protected revenue and profits are at risk, and they are trying everything they can to stem the tide. Their loss of primacy in the energy sector pushes them to fund every dimwitted politician they can to defend their kingdoms. They see the impending loss of their business, and push back.

Here’s a fun adjacent example. Many car dealers around the country are very hesitant to sell electric vehicles. Why? Because EVs run better and don’t require as much maintenance, which cuts into dealer’s service department profits. Think about that for a minute. A dealer would rather sell you a car that breaks down and needs constant upkeep than something that might serve you better. Their loss aversion prevents them from imagining a better customer relationship and business outcome.

Patriarchs and toxic masculinity: Look close at the rise of figures like Joe Rogan, Pete Hegseth, or Andrew Tate and you’ll see a reaction to a perceived loss of place in the social and familial pecking order. Millions of dudes - especially in the U.S. - see DEI, gender equity, LGBTQ rights, and even women in the workplace as an assault to their identity. They cling to outdated definitions of manhood and can’t grasp or reckon with more modern and adaptable ways to value themselves. They feel a loss of social standing (whether it was ever really there or not) and aggressively kick out in fury.

Again and again, the political, cultural, and societal forces defining our times can be traced back to someone feeling loss. It’s not defensible, and actually speaks to a more foundational issue.

Dealing with change.

Our world is changing in ways that no other generation has ever had to reckon with, and that triggers (in many) a sense of diminishment. Loss aversion kicks in, an emotional avalanche gets started, and we all have to sort through the resulting chaos.

Never mind that much of the change we are seeing is objectively good. By numerous dimensions the human race is in a much safer, fairer, and happier place than just a couple of generations ago. But getting there causes disruption, and change. And change is often hard.

So whenever I read the news or wonder “Why are they behaving that way?”, I often come back to loss aversion. I look at the situation and ask “What are they worried about losing?”

It explains so much.

Parting Proclamation

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Disclaimer:

All content and opinions are solely those of the author (Jack), and not representative of my employer, former employers, anyone in Congress, my family, former college roommates, Baptists, the good citizens of Colorado, or my dog Mabel.