The power of loss over the power of gain (Loss Aversion)

If you’re traveling and looking for a place to eat, where do you turn for advice? Many of us whip out the phone and look at Yelp. And when we look at Yelp, and as scroll through the reviews, what jumps out?

It’s not the four and five star reviews, because there are so many of them. And the four and five star reviews don’t stand out in our brain because they serve the function of justifying the decision to go to that restaurant.

No, the ones that stand out are the one and two star reviews, in a sea of four and five star reviews.

Our eyes are drawn to them. These are the reviews that we read.

Why? Because of a theory called loss aversion.

Loss aversion works like this: the emotional impact of a “loss” is about twice as much as an equal “gain.” In other words, the intrinsic motivation to avoid loss is far more powerful than the intrinsic motivation to build, earn, or gain.

Looking through those Yelp reviews, a primitive part of your brain triggers, fearing loss of your money or happiness if you go to that restaurant.

For this reason alone, restaurants need to be on top of their Yelp, Google, and Trip Advisor reviews. It’s incredibly important to address the (hopefully rare) low score and have a system/plan to deal with it.

Be aware of the immense power of loss aversion. This is important stuff.

PS: Same thing applies to the wine retail and wholesale industry. The fear of loss is more powerful than the impact of an equal gain. Knowing this, you can steer certain conversations and sales in the directions that you want them to go. But be careful … if you dwell in the energy of the ‘loss’ too much it becomes its own monster and can hurt your reputation.

PPS: Loss aversion was at play in a major way during the recent political season. Think about it. This is one of the reasons why negative campaigning, unfortunately, works.

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Wikipedia article on Loss Aversion: https://en.wikipedia.org/wiki/Loss_aversion

How loss aversion can impact design: https://www.interaction-design.org/literature/article/loss-aversion-theory-the-economics-of-design

National Public Radio story on loss aversion: http://www.npr.org/templates/story/story.php?storyId=240685257

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