What Do You Have To Lose?
Loss-aversion can be detrimental, because what is at risk in our most impactful moments is our reputation. Failure is inevitable, and the more we recognize and appreciate that, the clearer we can think.
Making decisions in today’s world is complex. We like to think that we are rational, but how could we be? We have access to more information than ever before, and underlying biases shape our opinions in ways we are not consciously aware of. These subconscious factors are called cognitive biases, and their discovery created the entire field of behavioral science.
So what do we do? We cannot change our hard-wiring, or curl up into a ball of indecision. At best we can simply acknowledge that we are not purely rational, understand that outside influences impact our decisions, and study each bias to try and prevent them as best we can. By merely recognizing them in our decisions, we give ourselves the ability to override them. This endeavor is endless, but we are in good company, as every successful man or woman in history has tried to improve their decision making to some extent.
When faced with difficult decisions, our brains switch to self-preservation mode in order to avoid risk. This is obvious when we do something that physically scares us. Imagine standing atop a high dive at a pool. Our breath quickens, we sweat, we shake, and we tense up — anything in order to prevent us from walking over the edge. Only mental fortitude allows us to override these physical limitations.
While physical examples are obvious, our brains have the same reactions to what it may perceive to be a threat, and can prevent us from moving forward and doing what is right. We view our potential losses as more detrimental than what we stand to gain. This is called the Loss Aversion Bias, which Laurence Enderson in his book Pebbles of Perception describes as “Dog With A Bone.”
“Dog with a bone (loss aversion).
We hate losing things. Typically we weigh losses twice as heavily as we value gains. This causes us to react very negatively if someone tries to take something from us. It also helps explain why we are reluctant to cut our losses, preferring instead to keep going in the vain hope that we may break even.”
Anyone who has gambled has been in a losing situation, and surely negotiated with themselves by saying “OK, I will get back to even and then I will stop.” This is, of course, exactly what the casino wants. We even have sayings in support of this bias: The Devil you know is better than the devil you don’t, A bird in the hand is worth two in the bush… When faced with new opportunities, our minds push back on risk and encourage us to stay safe because it fears the loss of what we already possess — any situation with an uncertain outcome becomes a threat.
The same physical reactions as the high-dive occur during, and in advance of, public speaking. Your body goes through agony even days beforehand, in order to prevent you from standing in front of an audience. This also happens when a salesperson needs to make an important call on a large company, or during negotiations. CEOs often face these high-intensity situations daily when allocating company resources — any wrong move could leave everyone jobless. Since there are no physical threats to us in these situations, our desire for safety and risk-avoidance leaves us stagnant and prevents us from making important decisions, ultimately holding us back from rising up to challenges and growth-opportunities. You may have experienced this if you were offered a job opportunity that would force you to leave your current situation.
Loss-aversion can be detrimental because of what is at risk in our most impactful moments: our reputation. Failure is inevitable, and the more we recognize and appreciate that, the clearer we can think. Mindset is the first step towards alleviating this fear, because risk-taking and honest accountability are inevitable if we want to progress in anything.
Employees in corporate environments are constantly discouraged from taking risks. This is one of the fundamental reasons why businesses demanding success with zero mistakes will always either fail, or become ridden with politics. With fear as a precedent, anytime the corporation makes a change, say a new product or a new marketing strategy, each employee is already prepared with multiple people to blame if it does not work out. This toxic environment makes growth impossible. For companies to stay relevant and fast-paced, employees need to be encouraged to take calculatedrisks without fearing their well-being. Failure is often the best teacher, but the hardest to cope with.
Enderson’s explanation of fear and loss are consistent with his views on self-measurement — they are based on perspective:
“Fear is closely associated with anticipated loss. Change always brings the possibility of loss. The subtlety of loss is that it does not exist on its own. Loss must exist in relation to something, otherwise it has no meaning. We worry that we are losing out as compared to a present or perceived state. Comparison causes fear. Envy causes fear.”
If the only thing on our minds is how we look on a stat sheet against a coworker, we will always play it safe. Companies that do not have strong culture face this sort of politicking, while employees who believe in their company and want to drive its success will take the risk without fear of losing their job if something goes wrong. I certainly do not mean employees do not need to be held accountable for mistakes, but if they can explain their decision and acted in the best interest of the company, then that should be absolutely acceptable and made immediately into an learning opportunity, since we learn best immediately after we take action.
Always an advocate of his people, and one of the most successful businessmen in history, Richard Branson references his support of employee empowerment in his book Like a Virgin: Secrets They Won’t Teach You at Business School:
“Management is also about communicating clearly; explaining why a decision has been taken or in which direction the business is going. Your communications should carry authority without being hectoring or bombastic, presenting a simple vision of what has to be achieved. At the same time, good managers continually question the way people do things and encourage employees to do the same-thereby ensuring they are always ready to adapt to changing conditions.
When things do go wrong, you must teach yourself to listen to your employees and encourage them to find solutions. If you’re worried by the business’s finances, share this with your team and then listen to their suggestions for improving the situation. Your employees should never feel like hired hands, but fellow entrepreneurs.
You have to protect your people. It’s your people who make a company exceptional or average.”
That last sentence should resonate with those who enjoy where they work, and it may be worthwhile to reflect on why you love working there so much. Do you feel protected? Do you work with others who share your tenacity and enthusiasm? In most cases the reasoning will line up with Branson’s sentiment seamlessly.
We should be excited by the risks that are available to us. When things go wrong (and they will) our perspective and our response are most important. Even the worst failures and downfalls have been overcome by reframing the problem. Rather than letting our fear control us, we need to take calculated risks and view each failure as an opportunity for growth. The only way we can do so is to acknowledge the fear, and adjust our perspective as each situation arises. From Pebbles of Perception:
“So yes, there will be loss. But we should know that:
Loss is natural and to be expected;
The consequences of loss will not be as bad as we imagine, especially if we are living full and varied lives.
We never lose our capacity to learn, our capacity to love and, above all, our capacity to choose.”
Often time this fear actually points us in the right direction, letting us know what truly needs to be done. This can be terrifying or inspirational depending on how we want to look at it.
“We have a choice right now. Do we choose to face fear or do we choose regret? Why not cast away the anchor of fear, leave the harbour of regret and let the winds of curiosity take us forth. Feet on the ground, eyes on the horizon…”
If we allow fear to drive us to inaction, we will never achieve what we are capable of.
Like a Virgin: Secrets They Won’t Teach You at Business School is an inspirational read from one of the greatest leaders of our time. Richard Branson is the perfect mentor when considering taking risks and imagining what we are capable of.