25 Cognitive Biases, Bias 14 - Deprival-Superreaction Tendency
Bias 14 – Deprival-Superreaction Tendency
12
Mar
Mar
Deprival-Superreaction in a way is loss aversion. Loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Most studies suggest that losses are twice as powerful, psychologically, as gains.
A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, love, friendship, dominated territory, opportunity, status or any other valued thing
This bias is probably one of my favorites,
Basically lets say you get payed $50k a year and you get a raise of $50k. You’re now making $100k a year and you feel GREAT!
Now lets take a different approach.
You make $100k a year and because of issues with your company, you now only get $75k a year and you feel F****** PISSED!!!
Many studies suggest that losses are twice as powerful, psychologically, as gains.
A little better way of saying is this. You invest $40,000 and by the end of the year it’s worth $60,000. You feel great but it doesn’t impact your feeling or behaviors significantly. Now say that you have an investment that started out with an evaluation of $60,000 but it’s only worth $50,000 by the end of the year. You could become irrational, depressed, reactive , bitter and overwhelmed by this. This smaller loss will have a much greater impact than the larger gain.