The fear of missing out — Part 1: The Loss Aversion

And I did the unthinkable: subscribe myself for promotional emails, despite knowing they are mostly spammy.

I was subscribing to Netflix membership. As most services, Netflix too presented me with an option to subscribe to emails informing me of offers. But the way it presented the choice was one of the subtlest Behavioural Engineering I have observed so far. I could not help but opt-in.

Look at the Netflix’s call for opt-in for offer promotions.

Netflix subscription form

Whereas most services’ call for subscription for promotions are like this:

Usual subscription forms

If you have not yet noted the difference, Netflix frames the sentence as though by not opting in I tend to lose out on offers whereas other services say that I gain by opting in.

[There is another minor difference between the above two. Former is default opt-out (of a negative frame) and other is default opt-in. Between the identical wordings, default opt-in is seen to have better conversion. This is attributed to behavioural psychology finding called Status-Quo Bias]

Let me take this chance to talk about some of the findings of psychology that explains our choices and the behavioural engineering tricks that exploit these findings.

Framing Effect and Loss Framing

Consider these two options (Travesky and Kahneman).

1. A gamble that has 10% chance to win Rs. 950 and 90% chance to lose Rs 50.
2. Pay Rs. 50 to participate in a lottery that has 10% chance to win Rs. 1000 and 90% chance to win nothing.

The conversion is most likely to be high with the second option though both gambles are identical. These logically equivalent statements evoke different emotional reactions (in this case it is because losses evoke stronger negative reactions than costs.) This is called effect of framing, which refers to

“Unjustified influence of formulations(words chosen to describe) on beliefs and choices.”

The most effective form of framing effect in behavioural engineering is Loss Framing, where the words are structured to highlight the potential losses instead of potential gains.

One of the startups I consulted for, wanted to engineer more people to move money from savings account to short term liquid funds(Ignore the jargon). Instead of notifying the users that they gain certain amount by investing in liquid funds, I advised to frame the sentence in terms of loss. Read the framing below:

Sentences framed in loss

And as expected there was significant difference in conversion. Why does this work then?

Loss Aversion

Consider this gamble involving toss of a coin (Travesky and Kahneman):

1. If the coin shows tails, you lose Rs. 1000.
2. If the coin shows heads, you win Rs. 1300.

Although the expected value of this gamble is positive, most people are going to dislike the bet. It has been generally observed that

“Loss triggers much stronger pain than equivalent gain. Most studies show that losses are twice as powerful as gains on our psyche.”

Thus people tend to strongly prefer avoiding losses to acquiring gains.

This tendency for loss aversion makes Loss Framing one of the most potent influence/persuasion tools. With this knowledge in mind you can better word your ‘call to action’ to users.

To be continued in part 2 ….

Explaining Framing Effect through Neuroeconomics

Neuroeconomics seeks to explain human decision making in terms functioning of different structures within the brain. Amygdala of the brain (don’t bother where it is situated) known to be responsible for decision involving potential costs and emotion related learning, gets modulated to varying extent by framing effects and thus effects overall choice/decision made.

Brain structured involved in decision making where Amygdala is found to respond to framing effects