Loss Aversion: a Significant Barrier to Social Change

“The ability to scare the hell out of people is much greater than the ability to attract them to equities.”

– Brian Barish

What have you got to lose? It seems like a question that should only be asked of a scared, desperate person, or of someone who is knowingly on the winning side of a rigged game.

What have you got to gain? Now, that is something you ask an optimist or an idealist, right?

These two questions are at the core of leading social change. If the best future that someone can imagine is one where they have simply protected what little they have, then your task becomes exponentially difficult.

There is an idea that economists and marketing professionals talk about called, loss aversion. The basic idea is that people have a tendency to strongly prefer avoiding losses to acquiring gains. This is a concept that apparently transcends mere financial considerations. It can also be thought of in terms of the “losses” being in the form of loss of status, or of access.

Ultimately the loss aversion leads to risk aversion. That is what the privileged and the affluent are banking on. Not only is loss aversion at the center of all negotiation, it is also the enemy of positive change, and innovation.

As I pointed out in a previous post on risk aversion, Risk-taking is the only prescription for overcoming complacency, apprehension, and fear of failure.  At some point risk-aversion becomes an inescapable pessimism. A vision of a different world becomes unimaginable.

Avoiding this hopelessness requires vision, and a belief that the gains you desire are realistically achievable. It also helps to be reminded that your fear arises in part, from the fact that there are people who don’t want things to change, who are doing their best to keep you scared. Don’t let them.

(See more on vision here, and here.)

Risk-Averse Versus Risk-Taking

“The most important thing to remember is this: to be ready at any moment to give up what you are for what you might become.”
– W. E. B. Du Bois

When your goal is to create change in the world, embracing risk is the foundation of leadership. Attempting to mitigate all risk out of an action eliminates any possibility that that action will result in substantive change.

Risk-averse people naively expect that success will simply to come to them.  Risk-takers understand that success requires creative, strategic pursuit. Your goal is to get people to act, and wholeheartedly embracing risk is the only prescription for overcoming complacency, apprehension, and fear of failure.

Risk ≠ Recklessness. The desire for change is not just emotional; it is also rooted in logic. Risk is calculated. It is a carefully considered series of if/then statements that reach a conclusion that risk has a return on investment. Without risk, the logic model remains theoretical. Risk demonstrates people’s capacity to achieve a stronger, more vibrant society.

risk-averse vs risk-taking

Somewhere along the line our concept the word risk became profoundly one-sided, framed primarily in undesirable terms. Don’t get caught in that mind trap.

risk
noun
1.
exposure to the chance of injury or loss; a hazard or dangerous chance:
“It’s not worth the risk.”
– dictionary.com

Risk is at the Core of Leadership

Be United
The idea of strength in numbers can make risk less scary. Leaders aren’t simply assessing risk on a personal level. They have locked arms with stakeholders sharing a common vision of what change needs to take place. Risks are shared as well.

Be Committed
Willingness to risk is a measure of commitment to values and to a shared vision of the change that needs to happen.

Be Creative
Willingness to risk is also a measure of creative thinking. If you can’t imagine a better future, it will never come about.

Be Radical
Transformative change is radical change.  Ending slavery was a radical idea. A woman voting was a radical idea. Don’t be concerned about being seen as radical. Be concerned about doing what is right.

Life is a continuous risk-taking process that goes something like this: risk, success or failure, learn, and repeat. You are working to change something. Change is impossible without risk, and change is required to better people’s lives.