Discover more from Course Notes: Continuous Business Learning
Why the Most Important Idea in Behavioural Decision-Making Is a Fallacy
Scientific American, 2018-07-31
What we are Led to Believe
People are loss averse, i.e. they experience more intense emotions when it comes to losing something (money, assets, etc.) than gaining an equal amount.
Preachers: Kahneman, Thaler.
What Actually Happens
This cognitive bias leading people to avoid losses more vigorously than pursuing gains doesn’t exist.
Messages appealing in terms of loss are NOT more persuasive than those appealing to gains.
Price increases (loss to consumer) are not more impactful than price decreases. [MK: price elasticity in microeconomics says otherwise, but it ignores the max consumption and saturation.]
Big financial losses can be more impactful [in terms of response] than big gains, but that’s individual risk management, not a bias.
Economists are humans, too, and tend to ignore evidence to the contrary.
The sunk cost effect (exists) may look like loss aversion, but loss aversion is a choice, and sunk cost has already happened.