Loss Aversion

Humans: Fear of loss trumps desire to gain.


If I gave you $50 with the following two choices, what would you do?

  • Keep $30.
  • Gamble, with a 50/50 chance of keeping or losing the whole $50.

An experimenter posed that question to subjects, and found that 43% of the subjects chose to gamble. Then the options were changed to:

  • Lose $20.
  • Gamble, with a 50/50 chance of keeping or losing the whole $50.

Same thing, right? In fact, though the dollar amounts are the same, with these options, 62% of the subjects chose to gamble. Expressing the first option as a loss caused a 44% jump in the number of people avoiding that choice! (The purely rational choice, of course, would be the non-gambling option, since the average value of the gambling choice is $25 vs. the certain $30.)

This research, published in Science and described in Dean Buonomano’s Brain Bugs, exhibits two key points:

  • Framing (the way we describe something) has a huge effect on behavior.
  • People are loss averse.

To underscore the importance of loss aversion in humans, the researchers found that over the course of a series of decisions like this, 100% of the subjects gambled more when the other choice was posed as a loss. Although individual variations existed (some subjects gambled a little more, others a lot), it’s quite surprising that every single one was influenced by the way economically identical options were framed.

The Neuromarketing takeaway here is that expressing the outcome of NOT buying your product or service as a loss will convert more potential customers into buyers. If your product can save a customer $100, don’t express that in terms of saving:

  • OK: “Save $100 in energy annually! Buy our furnace gizmo!”
  • Better: “Don’t lose $100 in energy every year! Buy our furnace gizmo!”

Even products not specifically geared to cost saving can use this strategy. One common example: sale prices and discounts can be expressed in terms of “not losing” vs. “saving.”

Non-monetary Loss

While the experiment measured loss aversion and framing in a financial choice, there is every reason to believe that our human preference for avoiding loss carries over into other domains as well. We can lose lots of things – popularity, social standing, peace of mind, good health, sex appeal… Just about every product that delivers a benefit can frame that benefit in terms of a loss.

Here’s a totally self-serving example using the first non-monetary product that came to mind, my upcoming book Brainfluence (Wiley, November 2011). Your choices:

  • Lose thousands of dollars of sales and profit in 2012.
  • Risk $16, pre-order Brainfluence, and try at least a few of the 100 brain-based marketing strategies in 2012.

That’s just one way I could have presented the options. I could also have framed it in terms of “losing money by ineffective ad spending,” for example. Either of those approaches should work better than just promising “higher sales” or “more effective ads.”

I’d never urge marketers to be relentlessly negative in their advertising and sales pitches. But when the opportunity presents itself, framing the alternative to buying as a loss will likely outperform the other approaches.

How can you express the alternative to buying your product as a loss? If you are stuck for an idea, post a comment… Neuromarketing readers are a clever group, and maybe someone will solve your problem!

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