Exploit Explained: Loss Aversion

{This post is part of the Archive of Human Exploits}

Let's play a game. I'll toss a coin. If it's tails, you lose $100. If it's heads ... well, you decide. How much would I have to offer before you'd be willing to play?

Most people, it turns out, say $200. In other words, the potential gain has to be twice the potential loss for them to play. This lopsided effect is known as loss aversion.

Coined by psychologists Daniel Kahneman and Amos Tversky as part of their larger, Nobel Prize-winning concept "Prospect Theory," loss aversion says we feel the pain of losing much more intensely than the pleasure of winning. As a result, we go to greater lengths to avoid loss than to achieve gain.

In the video above, former FBI hostage negotiator Chris Voss explains how understanding this exploit is useful in the context of a negotiation. More broadly, Voss believes almost all human behavior is driven by some variation of the aversion to loss, and that getting to the bottom of why is the key to communicating with people in an emotionally intelligent way. He explains this and more in his best-selling book, Never Split the Difference: Negotiating As If Your Life Depended On It.

There are many other areas where the loss aversion exploit is useful and used. Wikipedia cites a classic example: Would you rather get a $5 discount or avoid a $5 surcharge? It turns out that the "same change in price framed differently has a significant effect on consumer behavior." People are more motivated to avoid the surcharge than they are to claim the discount.

Life coach Tony Robbins uses the recognition of loss aversion to help people see the way forward to success. "For most people, their fear of loss is much greater than their desire for gain," he says. "Most individuals would work much harder to hang on to what they have than to take the necessary risks to shoot for their dreams." Robbins antidote is intensive, multi-day seminars that can last up to 14 hours per day. In doing so, he instills a desire for gain much stronger than 2X in order to overcome this exploit's powerful pull.

The Six Human Needs

According to Tony Robbins, there are six basic human needs:

1. Certainty. Assurance you can avoid pain and gain pleasure. We all have a need for certainty, safety, stability and predictability in our lives. We like to feel secure in our jobs, in our homes and in our relationships.
 
2. Variety. The need for the unknown, change, new stimuli. We crave change, excitement and new stimuli. Variety makes us feel alive and engaged.
 
3. Significance. Feeling unique, important, special or needed. Deep down, we all need to feel important, unique and special. We want our life and our work to have meaning, importance and significance.
 
4. Connection. A strong feeling of closeness or union with someone or something. Everybody strives for a level of connection and affiliation with people around them and wants to feel part of a larger community. We want to be loved and cared for and we want a feeling of closeness or union with like-minded people – be it friends, family, colleagues, members of a club or an online community.
 
5. Growth. An expansion of capacity, capability or understanding. As human beings we all have a need to grow and expand in our personal and professional lives. People are most happy when they feel they are making progress. We all need something to strive for, something that will challenge us to grow and expand emotionally, spiritually, physically, financially and intellectually.
 
6. Contribution. A sense of service and focus on helping, giving to and supporting others. This is the need to help, serve and support someone or something bigger than ourselves in a meaningful way. As human beings we have a desire to contribute something of value, whether that is manifested through community, family, society or the project work that we do. 

“Everyone ranks these human needs differently, and the way they are ranked explain why you are the way you are as a person,” according to Robbins. “The top four needs in the list above shape our personality, while the last two (growth and contribution) shape our spiritual needs.”

When I did this analysis, I concluded that my top two needs are Variety and Growth while Significance and Contribution are much less important to me. 

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Source: The list above combines an article on the TonyRobbins.com and a LinkedIn article by executive coach Susanne Madsen.

Robbins on Retention

"Information that is not attached to emotion is not retained."

 - Tony Robbins

Relationships Die from Lack of Intimacy

"If you do what you did in the beginning of the relationship there won’t be an end ... Extraordinary, loving, intimate relationships don’t die for lack of love; they die from lack of intimacy

- Tony Robbins, "Don't Get Stale"

Clickbait: Dissecting the Need to 'Stay Informed'

{This post is part of the Archive of Human Exploits}

Much has been written about how the Internet hijacks our brains. Exhibit A is the phenomenon known as "clickbait," which Wikipedia defines as "web content whose main goal is to get users to click on a link to go to a certain webpage." In most cases, the content is positioned as some form of "news."

There are several human exploits working together to empower clickbait news, all of which fall under a rationalization often described as the need to "stay informed." In a recent article titled "Why You Should Stop Reading News," Shane Parrish of Farnam Street explains the pull of that need and why it's a trap:

I've stopped consuming news. At first, it was really difficult. When my friends would start talking about something topical and emotionally charged and ask me what I thought, I'd have to say I don't know. This was followed by a 'What!?' and 'You have to read this' as they took out their phones to text me a link to an article I would never read. One hilarious aspect of this situation is that they often expected me to stop the conversation with them and read the article so I could share in their outrage. No thanks. 

Being well informed isn't regurgitating the opinion of some twenty-two-year-old with no life experience telling me what to think or how outraged to be. Your first thought on something is usually not yours but someone else's. When all you do is consume, you are not only letting someone else hijack and direct your attention; you are also letting them think for you.

Parrish alludes to several of the exploits that make clickbait so effective. I see at least four ...

1. Attention. "Getting attention is step one in any persuasion play," says Scott Adams, a trained hypnotist who gained celebrity as a cartoonist and is now a popular political commentator. Clickbait headlines are cleverly designed to get the most attention in a medium (the Internet) that is already optimized for grabbing attention, which is what makes them so irresistible (and insidious). One of the most powerful phrases employed is also one of the simplest: "BREAKING NEWS!" Another must-click phrase I am seeing a lot is "bombshell report" and its variants. Attention is an exploit because the things to which we pay attention naturally rise in importance in our mind — even if they are actually just as important (or less important) than things we are ignoring.

2. Curiosity. As Wikipedia explains in its entry, clickbait headlines "typically aim to exploit the 'curiosity gap,' providing just enough information to make readers curious, but not enough to satisfy their curiosity without clicking through to the linked content." This is actually an old technique. I've ready many books by the 'old masters' of advertising going back a century or more. They all agree that curiosity headlines are some of the most effective.

3. Variety. Life coach Tony Robbins considers variety one of our six core human needs. "Variety creates excitement for us," he writes. "It makes us feel alive. And we need surprises in our life, because that’s what helps us grow." By definition, news is novel and novelty equals variety. As Parrish explains, though, clickbait perverts the true purpose of variety. Instead of helping us grow, it helps the content provider's audience numbers and profits grow.

4. Outrage. Trained persuaders know that emotion underlies every human decision. For example, experts in selling have long known that people buy on emotion and justify their purchases later. That is, causing someone to strongly desire a product or service will not only short-circuit their reason in the moment but also actually cause them to invent reasons for buying after the fact (post-rationalization). In the news game, the equivalent of desire is outrage. Clickbait journalism, especially these days, thrives on it. When people articulate the need to "stay informed" as a rationale for reading lots of low-quality news, they are most often talking about the need to know about the latest supposed outrage their peers will be talking about, as Parrish describes above.

Just Make More Money

Author Steve Siebold has had a profound effect on my thinking. I bought multiple copies of his book, How Rich People Think, just so I could hand them out to people.

Recently, in an article for Business Insider, Siebold shared one of his key insights about wealth. Here's the relevant passage:

Saving is crucial to building wealth, but you don't want to focus so much on saving that you start neglecting earning, which is what rich people focus on.

"The masses are so focused on clipping coupons and living frugally they miss major opportunities," Siebold said.

There's no need to abandon practical saving strategies. However, if you want to start thinking like the rich, "stop worrying about running out of money and focus on how to make more," Siebold said.

Our parents and grandparents taught us the secret to success is the "Protestant work ethic," which Google defines as "the view that a person's duty is to achieve success through hard work and thrift." This particular concept is Western and relatively modern, but the core idea is ancient and global.

In his book, Solve for Happy, Mo Gawdat writes:

[My mother] frequently invoked an Arabic proverb that, loosely translated, meant “Eat frugally for a year and dress frugally for another, and you’ll find happiness forever.” As a young man I’d followed that advice religiously ...

[To me that meant] I should study and work hard, save and be willing to defer certain forms of gratification to achieve certain goals.

But Siebold suggests the real secret to success is not "work harder and save more." It's "work smarter and earn more."

That has been my experience. I was always an over-achiever and a hard worker. I was always good at managing my finances and making sure I was saving money. But I didn't become wealthy until I focused on what I earned, not on what I saved.

One reason is that focusing on savings creates a scarcity mentality. It causes you to have self-limiting beliefs because you are always thinking about how to do less rather than create more. It's a trick of focus. As Tony Robbins says, "where focus goes, energy flows." You want your energy to be spent on increasing, not decreasing.

It's the need for mental consistency that undermines us. Our mind insists that we either be a Saver (who, it follows, doesn't need to earn a lot) OR an Earner (who, it follows, will always spend a lot). Trying to think of oneself as both a Saver AND an Earner creates an uncomfortable mental condition known as "cognitive dissonance." Yet that's exactly what Siebold is recommending.

I confess that I have been tortured by this mental conflict at times. For me, it generally takes the form of thinking that I have to choose between enjoying life and achieving financial freedom. What rescues me from this trap is a simple phrase my closest friend, Bill, once said to me. I was complaining to him about some scarcity problem when he replied: "Just make more money."

Naturally, my first response was: "How the @#!% am I supposed to do that?!" Later, I came to realize the answer to that question is not what's important. What's important is accepting that "just make more money" is the correct solution to the problem.

Model Those Who DO

"Many people talk, my advice is model the few who don’t just talk, but actually do."

 - Tony Robbins, from "I've Coached 50 Million People Around the World: These Are the Mentors Who Coached Me" on LinkedIn Pulse