Loss Aversion

 

The loss aversion bias is the general tendency for people to feel more upset by losing something than gain the same thing. One classic example of such a bias is a study by Tversky and Kahneman in 1981. The study requires participant, college students, to decide which of the two public health programs to enact to combat a new disease that would kill 600 Americans in the next year if no action was taken. The participants were randomly assigned to two groups.

Group 1 was presented with the following choices:
If Program A is adopted, 200 people will be saved.
If Program B is adopted, there is 1/3probability that 600 people will be saved, and 2/3 probability that no people will be saved.

Group 2 was presented with the following choices:
If Program C is adopted 400 people will die.
If Program D is adopted there is 1/3 probability that nobody will die, and 2/3 probability that 600 people will die.

72 percent of the 152 students surveyed chose program A over B and 78 percent of the 155 students in group 2 favour D over C.

The study illustrated the effect of how framing the same problem in terms of loss or gain can lead to different outcomes.

There is also positive effect with regards to framing for conservation issues, for example, in a study by Yates in 1982, it was found that when information of insulating water heaters  to increase energy efficiency were provided in a way that stress how much money was lost encourage more people to insulate them as compared to when information was presented in terms of how much money could be saved.

Example in conservation psychology whereby loss aversion bias can be put into good use will be as followed:

You will lose $100 on electrical bills yearly if you do not switch to energy saving refrigerator.

You will be charged 10 cents for every plastic for your grocery.

Knowing how people’s preference can be potentially manipulated with the way information is presented is crucial. For example, different groups, institutions and governments may frame a problem in different ways, although not always intentionally, to bring across their viewpoint. We should always look at the information in an objective way.