I’m so excited to introduce the Choice Hacking podcast, a weekly show dedicated to exploring the ways behavioral science and psychology intersect with experience design, marketing, startups, and more.
We’re just getting started, but if you enjoy it, please consider subscribing and leaving a rating or review. Thanks!
Have you ever experienced FOMO — the “Fear of Missing Out”? It’s a form of social anxiety that makes people scared they’re being left out of exciting or interesting events. It’s usually triggered by posts on social media, where it looks like the whole world is having fun without you. If you suffer from FOMO, you’re not alone. A recent study found that 70% of millennials experience the fear of missing out regularly. And there’s a powerful psychological principle behind why people experience FOMO — it’s called Loss Aversion.
First identified by Nobel Prize-winner Daniel Kahneman, Loss Aversion is a psychological principle that says people will go to great lengths to avoid losing. In fact, the psychological pain of losing is twice as powerful as the pleasure of winning. Join us as we explore the good and bad sides of Loss Aversion, and how to use it to create more engaging, persuasive, and effective customer experiences.
0:00:00.0 Jennifer Clinehens: This week on Choice Hacking.
0:00:05.7 Speaker 2: You get on base, we win. You don't, we lose. And I hate losing, Chavy. I hate it. I hate losing more than I even wanna win. And there's a difference.
0:00:14.8 JC: That's actor, Brad Pitt, portraying baseball manager Billy Beane in the film Moneyball, and what his character is describing and articulating here is a fundamental human truth: People hate to lose. We hate to lose so much that the psychological pain of losing is twice as powerful as the joy of winning. So what is it about losing that people hate so much, and why will they go to such incredible lengths to avoid it? What Brad Pitt's character is describing is a principle known as loss aversion, and understanding how to apply it can help us create persuasive, effective and emotional customer experiences. I'm Jennifer Clinehens, and you're listening to Choice Hacking, a podcast about applying behavioral science and psychology to business, from customer experience to product design, marketing and more. Join me today as we examine loss aversion and how it guides customer behavior, emotions, memories and choice.
0:01:26.9 JC: But before we get started, let's give a shoutout to the company who helps bring you this podcast, Audible. Since you're enjoying a podcast right now, I'm gonna take a guess that you love listening. And maybe, if you're like me, you love listening to audiobooks as well as podcasts. Now more than ever, audio content is becoming many people's preferred way to learn, connect and be entertained. At the moment, I'm enjoying my audiobook of the month, Shoe Dog by Phil Knight. Written by Nike's Founder and CEO, Shoe Dog tells the story of the company's early days and its evolution into one of the world's most iconic brands. If you're interested in marketing, advertising, product design or entrepreneurship, I highly recommend it. Check out choicehacking.com/audible to get your free 30-day trial of Audible Plus.
0:02:15.7 JC: And don't forget, you can get exclusive podcast episodes, e-books, courses, webinars and more when you become a Choice Hacking member. When you subscribe, you'll also get access to our content vault, as well as the new example vault with tons of real life examples of behavioral science and psychology principles applied in advertising, marketing, product design and customer experiences. Check out choicehacking.com/subscribe for details, and make sure to use the code PODCAST20, all one word, to save 20% off the price of an annual membership. Now, on to the show.
0:03:02.1 JC: What is loss aversion? Well, loss aversion is a psychological principle that says people will go to great lengths to avoid losing, and it's one of the most powerful psychological tendencies that we have. But one thing to know about loss aversion is that, like many behavioral science and psychology principles, it can be a double-edged sword. So on the bright side, framing information using loss aversion can help people make better or more informed choices. For example, a study was conducted to see if framing cancer treatments using loss aversion might improve opt-in rates. Here's how it worked.
0:03:41.3 JC: A particular life-saving operation wasn't getting as many patients to opt-in as doctors would like, so they partnered with a behavioral science research team who hypothesized that this low opt-in rate was related to how the options were being presented to patients. So here's what I mean. The team framed the risk of surgery as either a potential loss or a potential gain. So when surgery was framed as a gain, doctors would tell patients the one month survival rate of this particular surgery is 90%. That seems pretty good right? Now, compare that to surgery framed as a loss. Doctors told their patients there is a 10% chance of death in the month post surgery. Now that sounds a lot riskier. So what were the results? Well, when surgery was framed as a gain, so the survival rate, 84% of people, most people, chose to opt into the operation, but when surgery was framed as a loss, only 50% opted in. So the simple application of loss aversion actually increased the rate of surgery opt-ins by 54%. So what's the dark side of loss aversion?
0:05:04.8 JC: Well, first off, loss aversion can drive feelings of anxiety of missing out on things. Commonly, we call this FOMO, or the fear of missing out. It's a form of social anxiety that makes people scared that they're missing out or being left out of something fun. FOMO can be triggered by social media feeds where everyone looks like they're having the best time of their lives all the time, just without you. FOMO can be overwhelming for some people. And in fact, a recent study found that seven out of 10 millennials have suffered from it at some point.
0:05:38.8 JC: So now that we know the good and bad sides of loss aversion, how can we use it to motivate action and design customer experiences in a positive way? We'll take the issue of employee incentives, so salaries and bonuses, for example. And these have huge bearing on customer experiences because employees make up such a huge part of any experience. So this is the question: Are people more motivated when you give them a financial bonus for good performance, or if you give them cash and stipulate that they'll have to give some of that money back if, at the end of the year, their performance isn't good enough? A study done in a low-income community in Chicago tested these very questions.
0:06:21.4 JC: A research team studied 150 teachers to see what would happen if they promised to give them a bonus if their students did well or threatened to take money away if the students didn't perform well enough. Now, you might be saying something to yourself along the lines of, "Well, of course, bonuses work. I get one every year and I certainly earned it." But actually there's very little evidence that merit-based pay works. In fact, sometimes it actively backfires. So the research team wanted to find out if loss aversion might be a solution here. An article about the study is linked in the show notes if you wanna learn more, but long story short, they found that by tapping into these teachers' anxieties about losing money rather than their ambition to get more money, they could generate some really impressive results.
0:07:15.8 JC: The teachers were split into two groups, the bonus group that had the potential to make $8000 more based on their students' standardized test scores. But the second group was given $4000 and told that if their students turned in below average results, they'd have to pay back part of that $4000. The second group could even earn that same $8000 that the first group got offered as a bonus, as long as their students were above average. The results? Well, when teachers were tempted with only a potential bonus, there was no significant effect on the students' performance, but when the second group, our teachers who had money to lose, got to the end of the year, the impact on their performance was huge. The group's overall results had improved dramatically. Their students over-performed. In fact, the improvement in math scores was the equivalent of raising a teacher's skill level by one full standard deviation. For those of you not statistically inclined, that's a lot.
0:08:22.8 JC: Clearly, tapping into loss aversion had changed these teachers' performance for the better. So what is our tendency towards loss aversion have to do with creating a product, a company, or even a customer experience? Well, we can use it to help us motivate customers to take action. In fact, it's one of the oldest tricks in the business book, and you've probably seen it in your everyday life with offers like only a few left, clocks that tick down to the end of a sale, or even free trials where people don't wanna lose the benefits they've gained by using your product. But applying a principle like loss aversion calls for clear definitions for what is in and out of moral bounds. It's easy to take advantage of that feeling of not wanting to miss out. It is, after all, hard-wired into our DNA. But just because something gets results, don't forget to ask yourself if it's the right thing to do for the customer.
0:09:24.9 JC: Thank you for listening to the Choice Hacking podcast. And if you enjoyed the show, I'd love it if you could please consider checking out my book, Choice Hacking, available on any major Internet book retailer like Amazon, Apple, Kobo and Google Books, and in audiobook form on Amazon, iTunes or Audible. You can even download the first chapter free if you visit choicehacking.com/freechapter. As always, you can find me, Jenn Clinehens, on Twitter at Choice Hacking, all one word, or follow Choice Hacking on LinkedIn or Instagram. Until next time.
Thank you so much for listening to the Choice Hacking podcast. If you want to learn more, check out the links below for resources. If you decide to support the podcast by buying our book, becoming a member on ChoiceHacking.com, or leaving a tip, you can do that below as well - and thank you in advance, you absolute legend!
//Join + Follow
►Get the Free Choice Hacking newsletter: https://choicehacking.com/Subscribe
►Membership for exclusive videos, eBooks and courses https://choicehacking.com/PodSub - save 20% off the cost of an Annual All-Access Membership with the code PODCAST20 at checkout.
►If you'd like to leave a tip for a podcast well enjoyed, then you can use the "Buy Me a Coffee" platform: https://www.choicehacking.com/TipthePodcast
►Choice Hacking Book and Audiobook: https://choicehacking.com/PodBook/
►Behavioral Science in Action: IKEA ebook: https://choicehacking.com/IKEAPodBook
►Audible Referral Link: Support the podcast by visiting Audible for your free 30 day trial of Audible Plus: https://choicehacking.com/Audible
Disclaimer: Some resources include affiliate links, which means if you use click them and buy something I get a small monetary kickback 🙂
Thrive Leads Shortcode could not be rendered, please check it in Thrive Leads Section!