Loss aversion, self-knowledge and planning

The New Yorker has a review of “Thinking, Fast and Slow” by Daniel Kahneman.  Kahneman explores the concept of “loss aversion“, the idea that losses hurt more than gains feel good.  The review highlights the example of a group of physicians, presented with two scenarios with equal outcomes, with the only difference that the outcomes were stated in terms of “deaths” in one scenario and “survivors” in another.

The two different hypotheticals, of course, examine identical dilemmas: saving one-third of the population is the same as losing two-thirds. And yet, doctors reacted very differently depending on how the question was framed. When the possible outcomes were stated in terms of deaths (and not survivors), physicians were suddenly eager to take chances: seventy-eight per cent chose option D.

Why are doctors so inconsistent? Kahneman and his longtime collaborator, Amos Tversky, explained these contradictory responses in terms of loss aversion, or the fact that losses hurt more than gains feel good. In fact, people hate losses so much that merely framing a choice in terms of a potential loss can shift their preferences. Like those physicians, people are suddenly willing to risk losing everything if there’s a chance they might lose nothing.

What’s more, even knowing that the brain works this way doesn’t seem to allow us to change our ways.

This same theme applies to practically all of our thinking errors: self-knowledge is surprisingly useless. Teaching people about the hazards of multitasking doesn’t lead to less texting in the car; learning about the weakness of the will doesn’t increase the success of diets; knowing that most people are overconfident about the future doesn’t make us more realistic. The problem isn’t that we’re stupid—it’s that we’re so damn stubborn.

Every planner should be aware of this deep human aversion to loss.  Probably most have encountered it when presenting a new development, vision or plan, even if it wasn’t apparent.  The thought of losing something, whether it’s property value, space on the road, homogeneity of community or safety, elicits a much stronger response than what could be gained through changes brought about by the plan or development.

What can planners learn from this? Well, first just be aware of it, know that the prospect of change will likely trigger stronger feelings about potential downsides than it will about potential benefits.

Second, perhaps we should change our processes.  Many planning processes include long and intensive visioning exercises that include numerous stakeholders.  One intent of such exercises, even if it’s not explicitly stated, is to overcome these loss aversion fears and help participants value the “gains” a plan or project might bring.  But perhaps this should change to capitalize on human nature instead of fight it.  Should we stress the potential “losses” that might occur under the status quo versus a new scenario?  Should we present alternative scenarios in terms of which might have the least unfavorable impact instead of which has the best impact?  I’m not sure.  The whole idea seems to go against the traditional visionary spirit of “community planning” which tends to focuses on the positive.  Designing participation processes with a thorough understanding of (or even ability to take advantage of) natural human biases deserves much more attention.  If we want to be effective, we should start by being well versed in the limits of the human mind and trying to adapt as best we can.

One thought on “Loss aversion, self-knowledge and planning

  1. I see that you’ve introduced the”crazy humans”tag with this post…

    I agree with all this, and would add another contributing factor, which is that oftentimes change can bring about a more immediate potential for loss whereas the potential for gains might be more distant or nebulous, even if they substantially outweigh the negatives.

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