Loss Aversion: Why People Tend to Sabotage Their Own Success

The human mind weighs some things more than others.

I asked my mom to invest some money in the mutual funds I’ve invested in. I’ve been convincing her for a year, and she’s even seen me make good returns from these funds.

It’s so hard to get her to agree, which is understandable because she doesn’t know much about the market. But the real reason is she’s afraid of losing all her money (again). Years ago her friend advised her to invest in stocks and help her with it. She lost all her money in the process and vowed to never put her money in things she doesn’t understand.

This month, we finally invested some of her money where I recommended her.

So what holds back humans from making decisions which could potentially be life-changing and bring them success?

What about you? Have you heard of crypto or certain stocks doing really well? Do you still hold back from investing, because you’re not entirely aware of the market to take huge risks?

I feel you and am on the same boat as you. Even though Bitcoin fell down, I continued feeling that I missed the boat and never bothered with it.

Introducing to you, loss aversion. According to Investopedia,

Loss aversion in behavioural economics refers to a phenomenon where a real or potential loss is perceived by individuals as psychologically or emotionally more severe than an equivalent gain. For instance, the pain of losing $100 is often far greater than the joy gained in finding the same amount.

Loss aversion isn’t just about money or stocks, but about life. In life, we’re so afraid to lose something little that we let go of the big picture — a perspective that could be sabotaging your success.

The psychological effects of experiencing a loss or even facing the possibility of a loss might even induce risk-taking behaviour that could make realised losses even more likely or more severe.

In simple terms, your brain makes a bigger issue out of things than the issue itself.

I’ve tried to recognise loss aversion, and here’s how it helped me.

Think about the area you wish you could improve in your life. For me, it was work. And no, I’m not telling you that because of the side-hustle or leave-your-9-to-5 porn that has been going around the web, but because I was genuinely frustrated.

My work didn’t have an awful boss or a toxic workplace, but I was the issue.

I felt like I’m in the wrong place, doing the wrong kind of work. Not just that, but no other kind of work excited me.

No jobs on LinkedIn looked appealing. Hell, I didn’t even dream of becoming a Vice President or a CEO. Why on earth would I want to live with that kind of stress and long working hours?

But what was the other way? Quitting my job and asking my parents for money? That wasn’t a viable option, either.

So after side-hustling for nearly 10 months, I finally became self-employed. And since then, I question the underlying fears that prevented me from making this decision earlier.

Here were some fears that I confronted rationally:

1. Being broke: keep a client in the pipeline and have sufficient savings.
2. Being alone: make friends online, people are genuinely nice.
3. Failing: If it gets closer to your big goal, it’s a failed experiment, not ‘failure’
4. People making fun of me: you’ll know who your true friends are.
5. Parents being ashamed: keep this as a motivator to work harder.
6. Plan not working out and everything falling apart: get a job.

What's the worst that could happen? This is a question I ask myself each time I’m overthinking negatively. Surprisingly, the huge negative events only exist in my head because the worst probable outcome isn’t so bad after all.

As something to keep you thinking, I encourage you to analyse what is it you’re so afraid of losing that it’s preventing you from taking bigger strides. Often, it’s that one hunch in your head that is making the loss seem way bigger than what it is.

As humans, it’s common to experience negative bias.

The negative bias is our tendency not only to register negative stimuli more readily but also to dwell on these events. Also known as positive-negative asymmetry, this negativity bias means that we feel the sting of a rebuke more powerfully than we feel the joy of praise.

We weigh negative more than positive and get so blinded by it that we lose the sense of what could we potentially gain.

Maybe your $100 will become $10, but it could also be $150. Could it be a risk worth taking? Maybe people will laugh at you when you start a Youtube channel, maybe your colleagues will think you’re stupid. But maybe you’ll enjoy it a lot and make great videos, is that not a risk worth taking?

What are the areas in life where you’re fearing the loss to be way more than it really is?

When you find yourself second-guessing opportunities you really want to undertake, think — what's the worst that can happen? And see if that dilutes the loss.

After all, life is all about taking chances. Some will work out, and some won't. How would you know if you never try?

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