HomeBehaviour change‘Meh’ vs yeah: how to make the most of loss aversion

‘Meh’ vs yeah: how to make the most of loss aversion

This is a guest post by Oliver Payne, an advertising professional and the founder of behavioural communications agency The Hunting Dynasty. He is currently writing a book on behavioural economics for sustainable behaviour, due out next year through Earthscan/Taylor & Francis.

The communications industry could learn a lot from the sciences. For a start, it would do well to look up a couple of economists called Kahneman & Tversky, and their 1979 paper Prospect Theory: An analysis of decision under risk’. It might not sound like most people’s idea of a good bedtime read, but it is the second most cited economics paper between 1975 and 2000. It’s a big deal.

Why so? Mainstream economics had us down as avoiding loss and liking gain. But when Kahneman & Tversky tested people, they found a more nuanced reading: We dislike loss twice as much as we welcome gain of equal size. We’re a little lop-sided. And this has big implications for how we communicate about sustainable living.

It’s called Loss Aversion.

In day-to-day terms, if you lose £10 you’ll feel two units of ‘meh‘, and if you find £10 you’ll feel one unit of ‘yeah’. Despite being mathematically back to zero, you’ve still got a touch of ‘meh’. And this affects your subsequent decisions. Or, to be more precise, it affects some of your subsequent decisions.

It must be treated with care.

Driving it like a scaremonger
Occasionally the Sustainaratti jump on the loss-wagon and drive it like a scaremonger. ‘You’re going to lose your life/the planet/your habitat’ they say – but it doesn’t work. We have a ‘finite pool of worry’, which is often full of more immediate problems. This is illustrated eloquently by James Hansen, Sabine Marx, and Elke Weber with their study of the decision-making processes of Argentine farmers.

They found that when forecasts for La Niña/El Niño made farmers more concerned about the coming season’s crop, there was ‘…decreased concern about other issues such as environmental degradation or restrictions of civil liberties’. And when forecasts improved, concern about environment and civil liberty increased – even though there was no objective change with or without La Niña/El Niño. This indicates a ‘finite pool of worry’, and the fix is to create a ‘portfolio of risk’ that is neither too extensive nor too potent. Loss Aversion simply isn’t effective in this instance.

But Loss aversion can help ameliorate the problems of resource-stress in some obvious, and less obvious, communication channels.

What? I’m wasting £200 a year?
Product messaging is an obvious home for marketing messages. But if you’re marketing a product that can save money, don’t say that. We know our motivation to save is not as great as our desire to avoid loss (by a factor of two-to-one). So talk about the loss to be avoided, instead.

“This loft insulation will save you £200 per year.”
[Thinking] So what?

“This loft insulation will stop you wasting £200 a year.”
[Thinking] I’m wasting £200 a year? Every year? Right now? *Klaxon*

It’s a simple tweak.

Making re-usable cups normal
Price structures are less obvious places for communications specialists to either look for, or be asked to look for, presentational benefits. This is a shame, because communication is deeper than a poster or a TV ad: every point a consumer is in contact is an opportunity to communicate.

For instance, in some coffee shops you get a discount for bringing your own mug or Thermos cup. But this isn’t going to drive behaviour efficiently, because we know we won’t work hard to secure the ‘gain’ of a discount for bringing-your-own. The price structure could be turned on its head by embedding the discount in all prices (as if the bring-your-own-mug brigade were the norm), and adding extra for those that want a disposable cup.

Instead of: £2 for coffee (£1.70 with your cup)

Flipped to: £1.70 for coffee (£2 with disposable cup)

No one gets charged any more, or any less, and yet we’d respond differently.

I purposefully used two very simple, uncomplicated, examples to show the presentation of gain and loss. But even with their simplicity we’re starting to see both Anchoring – we make estimates by starting from an initial value and then adjust it to yield the answer – and Query Theory – our preferences are not pre-configured, but are constructed by marshalling evidence based on context and our existing bias – at work.

The imaginary Land of the Neutral
There is no neutral way of presenting information. The Land Of The Neutral – a place where information is not twisted and bent by cheap Fairground psychology, where communication is odourless, colourless, and direct – doesn’t exist.

This statement should not to be taken lightly, because it has implications way beyond this essay. It means that every message, sign, image – anything that provides context to our world – adjusts our behaviour whether we know it or not, whether we believe it or not, and indeed whether we mean it, or not.

And its effects are persistent, consistent, and ubiquitous.

And as long as behavioural economics, environmental psychology, and the broader psychologies allow us to understand how this works, the communications industries can use it to help ameliorate the problems of resource-stress today, and help sell the solutions to resource-stress tomorrow.

We should not lose sight of this.

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Green Alliance is a charity and independent think tank focused on ambitious leadership and increased political support for environmental solutions in the UK. This blog provides space for commentary and analysis around environmental politics and policy issues as they affect the UK. The views of external contributors do not necessarily represent those of Green Alliance.