A loss hurts more than an equal gain feels good
We take more risks to avoid the pain of loss. The more we gain, however, the fewer risks we continue to take and the less we feel with each gain.
Kahneman & Tversky (1979). Prospect Theory: An analysis of decision under risk. Econometrica, Vol. 47, No. 2, pp. 263-292.
The study
Prospect theory is explained with a graph. Negative losses and positive gains recorded on the horizontal are set against a vertical intensity of feeling for those losses or gains.
As we gain more, we feel less for each gain. In contrast, even a small pain (shown in red) feels a lot more negative than an equal-sized gain feels good.
Kahneman & Tversky (1979). Prospect Theory: An analysis of decision under risk. Econometrica, Vol. 47, No. 2, pp. 263-292.
Key Takeaways
Package pain. Consumers will feel less overall pain from any costs incurred when you package and deliver them all together rather than when they're felt as separate, smaller pains.
Spread out rewards. Instead of offering larger, chunkier benefits to consumers, break these down into smaller pieces, spreading them out across time. $10 given 4 times feels more valuable overall than $40 given once.
Offer mixed product bundles. We feel less good with each thing we consume. Therefore, the first can of soda tastes better than the fourth. This means we'd get more complimentary value from a bag of chips instead. Look for ways to offer relevant, mixed product bundles to offset diminishing consumer sensitivity.
In further detail
A loss hurts more than an equal gain feels good
We take more risks to avoid the pain of loss. The more we gain, however, the fewer risks we continue to take and the less we feel with each gain.
Kahneman & Tversky (1979). Prospect Theory: An analysis of decision under risk. Econometrica, Vol. 47, No. 2, pp. 263-292.
The study
Prospect theory is explained with a graph. Negative losses and positive gains recorded on the horizontal are set against a vertical intensity of feeling for those losses or gains.
As we gain more, we feel less for each gain. In contrast, even a small pain (shown in red) feels a lot more negative than an equal-sized gain feels good.
Kahneman & Tversky (1979). Prospect Theory: An analysis of decision under risk. Econometrica, Vol. 47, No. 2, pp. 263-292.
Key Takeaways
Package pain. Consumers will feel less overall pain from any costs incurred when you package and deliver them all together rather than when they're felt as separate, smaller pains.
Spread out rewards. Instead of offering larger, chunkier benefits to consumers, break these down into smaller pieces, spreading them out across time. $10 given 4 times feels more valuable overall than $40 given once.
Offer mixed product bundles. We feel less good with each thing we consume. Therefore, the first can of soda tastes better than the fourth. This means we'd get more complimentary value from a bag of chips instead. Look for ways to offer relevant, mixed product bundles to offset diminishing consumer sensitivity.
A loss hurts more than an equal gain feels good
The study
Prospect theory is explained with a graph. Negative losses and positive gains recorded on the horizontal are set against a vertical intensity of feeling for those losses or gains.
As we gain more, we feel less for each gain. In contrast, even a small pain (shown in red) feels a lot more negative than an equal-sized gain feels good.
In detail
Scarcity
We value things more when they’re in limited supply
Social Proof
We copy the behaviors of others, especially in unfamiliar situations
Prospect Theory
A loss hurts more than an equal gain feels good
Reciprocity
We’re hardwired to return kindness received
Framing
We make very different decisions based on how a fact is presented
Loss Aversion
We feel more negative when losing something than positive when we gain it
Default Effect
We tend to accept the option pre-chosen for us
Anchoring
What we see first affects our judgement of everything thereafter
Fast & Slow Thinking
We make knee-jerk spontaneous decisions that can cause regretful damage
Dynamic Norms
We’re more likely to change if we can see a new behavior developing
Salience
Our choices are determined by the information we're shown