Loss Or Gain, What Do You Focus On?
It seems to be an all-too-common occurrence that people place a far greater weight on what they lose, rather than focussing on what they can gain.
We all have a choice to make, do we waste energy and time fretting upon the £10 we have lost all day, or do we take that energy and apply it to gaining far more than we lost.
Why do we place so much importance on avoiding a loss rather than the comparable gains?
Why are we more upset about losing £10, than we are happy about gaining £10? It is the same amount, yet one evokes far stronger emotions. We don’t like to lose things that we own. We become attracted to material things and even feel anxious at the prospect of giving them up. We ignore the opportunities that may be afforded to us by relinquishing our hold on them and the things that we may gain as a result of giving them up.
One would think that the more you have, the less emotional attachment you would place on objects and things in your life that you may lose. Ironically the more we have the more vulnerable we become. If you have accumulated wealth, you have far more to lose than someone who has not.
Psychologists refer to this behaviour as ‘Loss Aversion” Loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains. It is a principle that is very prevalent in economics.
All too often we focus upon setbacks rather than progress. I am all too familiar with this mentality. For years I focused upon all I could not do, rather than embracing and making the most of what I could. The turning point comes when you transition from seeing obstacles to seeing opportunities.
Loss aversion cuts across all aspects of our lives, it also applies to the emotional pain of scaling back. Whilst we indulge in buying things, a bigger home, more extravagant holidays, designer clothes, a top of the range car, the reality of having to downgrade from what we have become accustomed to can be incredibly painful. Roughly speaking the emotions of loss hurt twice as much as those you receive as a result of gains (Khaneman 2011).
When you think about this you can start to see how loss aversion spills across all areas of our lives. People will often stay in relationships far longer than they should out of a fear of loss. The loss that they may experience emotionally, the loss that they will experience financially, the loss of their collective identity. Avoiding loss becomes such a strong motivator that ironically whilst trying to avoid loss so vehemently, scores of people from all walks of life are losing the opportunity of a far better, happier and enriched life.
So how do we combat loss aversion. By expanding our awareness, we can start to notice the signs that loss aversion is creeping in. Forewarned is forearmed. Upon moving to a new house, I was astounded when I realised that I had four different kettles. Who really needs four kettles? Yet when I came to purchase a new kettle, I would hold on to the previous “just in case.” When thinking about the kettle a slight shift in perspective can make all of the difference. By imagining I had never before owned a kettle I could ask myself what I would be willing to pay for one. This approach to de-cluttering your life can pay dividends. You start to realise how little importance and necessity there is to hold on to things well beyond their natural lifespan.
So how do we combat loss aversion. By expanding our awareness, we can start to notice the signs that loss aversion is creeping in. Forewarned is forearmed. Upon moving to a new house, I was astounded when I realised that I had four different kettles. Who really needs four kettles? Yet when I came to purchase a new kettle, I would hold on to the previous “just in case.” When thinking about the kettle a slight shift in perspective can make all of the difference. By imagining I had never before owned a kettle I could ask myself what I would be willing to pay for one. This approach to de-cluttering your life can pay dividends. You start to realise how little importance and necessity there is to hold on to things well beyond their natural lifespan.
We can use this approach in various aspects of our life. Imagine that as you climb into bed tonight your life’s savings are wrapped up in one of the world’s top tech companies. When you awake the next morning all of your stocks have been sold and replaced by a pile of cash. You are faced with a simple choice; you can buy back all of the stock or you can take what you have made and diversify your investment across a number of different stocks. What would you do? The decision is yours, are you so attached to the stock that you are willing to put all of your eggs in one basket? Or does the prospect of expanding your investment potential and spreading the risk excite you more? This change in perspective allows you to step out of the position you are in and take a more objective view.
“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. ”
So, when you are next faced with the prospect of losing something, take a step back and consider what the opportunities to gain could be waiting for you. Rather than seeing it as a loss choose to view it as a redirection.