Loss Aversion Bias and the Risks of Not Taking Risks in L&D

Have you ever invested in something?  Maybe your investment was monetary with the purchase of shares of stock, a piece of real estate, or a few extra rounds at the roulette table.  Maybe you chose to invest your time and energy into a charitable cause or the development of a team member.  Regardless of the type of investment, the goal is to be successful and generate a positive return of some type.  As investors and as humans, gains make us happy. 

However, when an investment doesn’t turn out the way we want, it can really hurt.  In fact, the pain of loss is psychologically stronger than the pleasure of winning.  Our tendency to experience the pain of loss more acutely than the joy of winning is a common cognitive bias known as loss aversion, and it’s one of the biggest drivers of behavior change.

Describing Loss Aversion Bias

In 1979, the work of two psychologists, Daniel Kahneman and Amos Tversky, showed that the psychological impact of a loss is about 2 times that of a gain.  For example, the psychological distress of losing $10 would be twice as strong as the joy you’d feel from finding a $10 bill laying on the ground.  So, in the context of learning and development (L&D), one might hypothesize that to change behavior and overcome the learners’ innate fear of loss, the learning solution needs to promise and deliver twice as much as the old.

Loss aversion bias can make us behave a bit irrationally.  Think back to the example above involving shares of stock.  Loss aversion bias is why some people will hold a declining stock for far too long, choosing to do nothing as it tumbles toward $0.  Simply put, the pain of selling and “locking in” their loss is too great.  So, they just hang on, hoping for a turnaround, despite evidence that no such turnaround will occur.

As L&D professionals, we should be aware of how this bias can manifest itself in our own behaviors and in the behaviors of our business partners.  An example might be continuing to train in the same way despite declining performance or lower “returns” on our training investments.  After all, trying new approaches could be risky.  Maybe we fear that the results of a different approach might be worse.  Perhaps a business sponsor fears losing some control.  It’s human and natural to feel that way, but it shouldn’t paralyze us, keeping us locked into certain methods and approaches just because we’ve invested so much into them over time.

Helpful When Recognized and Managed?

Why does loss aversion bias exist?  Who knows?  It’s entirely possible that it’s a survival mechanism.  When evaluating options prospectively, it probably makes sense to weigh threats more heavily and make decisions that help minimize the risk of loss.  That’s important when you’re making a job-related decision today.  It was a matter of life and death to our ancestors who had to hunt and gather for a living with saber-toothed tigers roaming around.

The point is, we should recognize that loss aversion bias—like many cognitive biases and heuristics—is a tool that our brains can use to help us.  However, it can have some negative side effects.  Understanding what loss aversion bias is and how it may manifest in oneself, one’s stakeholders, or learners is the first step towards finding a solution that will lead to change. 

Dealing with Loss Aversion Bias in L&D

Examples of loss aversion experienced by L&D professionals can include:

• L&D professionals can become complacent in their approaches and their designs.  They can choose to do the same things over and over again because they’re “safe” and they fear trying something new and possibly losing face.
• Marketers and other business partners sometimes fear changes to traditional didactic approaches to training because they lose control.  They would prefer to maintain the status quo—regardless of the level of learning engagement or impact—than try something that won’t allow them to control the narrative.
• Learners sometimes experience training that fails to demonstrate “2X” greater value in learning to use a new resource, as compared to the resources they currently have.  So, utilization of newer marketing materials by field personnel is often low.

Unfortunately, it is not enough just to understand loss aversion bias.  We have to identify ways to overcome it.  That doesn’t mean we should throw caution to the wind and just adopt any new tool, technique, or technology that looks interesting.  However, as L&D professionals, we should:

• Be open to new tools and approaches
• Be analytical and develop an honest understanding of our business partners’ needs and objectives, as well the results we’re currently getting
• Objectively study potential new approaches and make professional assessments about whether and how we should try them
• Be willing to take “educated risks”
• Be willing and able to make the case to our business partners, supporting our professional recommendations

We have all experienced some form of loss aversion.  But, if we can recognize it and constructively overcome it, then we take a big step toward achieving the ultimate goal of positive behavior change.

This about this:  A lot of time and money is invested into patient adherence campaigns that are designed to remove barriers to behavior change.  How can pharma invest that same level of rigor into the learning and development of its people?  How can L&D professionals best identify the barriers to adoption to further the development of skills and knowledge, and improve utilization of resources?  Those are big questions but overcoming loss aversion bias is a good first step in getting to the answers.

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