Loss aversion influences behaviour is lots of ways

Loss Aversion Definition:

Loss aversion is a strong preference people have for avoiding losses rather than making gains.This was first identified by the psychologistsAmos TverskyandDaniel Kahnemanwho found that people have a loss aversion ratio of between 1.5 and 2.5.This means that for people to be willing to risk a loss of £100,most people would require a potential gain of between £150 to £250.As a result loss aversion is a strong factor in preventing people changing from the status quo or taking even small risks.

This Carphone Warehouse ad uses loss aversion to tell a more compelling story about why customers to switch their tariff.When we frame a positive outcome as a potential loss this is perceived to be more valuable than if we expressed it as a gain.

Image of Carphone Warehouse loss aversion advert
Source: Carphone Warehouse

Prospect theoryexplains how people respond to decisions where the probability of different options is known and loss aversion is an important factor in such situations.


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