Let it go, just let it go

Imagine this - you’re in a shopping mall and see a sign which screams “65% off! Limited time”. You’re not planning on shopping, but have a look anyway.

You spot an attractive item & observe it. It seems like a good deal…

You feel like placing it back but then feel the scarcity of the limited time offer. And the pain of losing the bargain seems to be too much.

“What if I regret not buying this item”?

Driven by this rationale, you buy the item.

This is a cognitive bias called Loss aversion. It explains why we feel the pain from losses about twice as much as we feel the joy of an equal gain.

In simple terms, it feels good to not lose $10, than to gain $10.

But why should you know about this?

The concept has multiple applications in:

• Psychology.

• Economics.

• Behaviour.

This knowledge is crucial as it shapes our choices, influencing everything from financial decisions to relationships. When we’re aware of this bias and why it happens, we can make rational decisions. This leads to much better outcomes in all areas of your life.

Why does this happen?

When an organism sees threats as more urgent than opportunities:

They have a better chance of surviving and reproducing.

So, We're wired for it. It is not something you can practice and change. But, you can learn about it. So when you see this in your life, you can make a sound decision.

How you can use this knowledge to your advantage:

1. Relationships. Not ending unhealthy relationships due to the fear of emotional loss.

2. Career. The fear of losing job security hinders you from quitting a job which sucks.

3. Investments. Holding onto bad investments for a long time (to avoid the loss).

4. Health: Postpone / avoid health check ups for the fear of receiving bad news.

5. Decision making: Procrastination from the fear of making a wrong decision.

6. Following your dreams: The fear of the unknown stops you from going all - in on your side hustle.

Examples you can see around you daily:

• Limited time offers.

These create a sense of urgency. Customers who would not otherwise buy the product end up buying. The fear / pain of missing the reward is more than the logic of "do I really want this?".

• Free trials, money - back guarantees.

Without commitment, the customer experiences the product. When it becomes a part of your lifestyle, you don't cancel the benefit - you fear, thinking "what if I need this later".

• Loyalty programs.

You fear losing out your rewards, so keep buying the product (irrespective if you need it or not).

• FOMO.

  

  Source

You fear missing out of the "happening" stuff, and buy things you don't need.

• Subscriptions.

You fear losing your "benefits", so continue your membership.

How to use this in your daily life:

1. Financial investments.

   While buying or selling, don't focus on the worst case scenario. e.g. not everyone needs a $1 million term life insurance. Assess your situation, investment needs and decide.

2. Embrace changes.

   Realize that loss aversion leads to resistance against changes. It may be leaving a job, ending a relationship or starting a new venture. At these turning points, assess the potential gains and losses. Consider the long - term benefits and take a decision.

One of the best tools I used for such cases was Tim Ferris' fear setting.

3. Consumerism.

   Don't become a puppet to the capitalistic system & buying frenzy. Sales are good but only to buy stuff you need. Remember, the earth has enough to meet your need but not your greed.

4. Minimalism.

   Stop clinging to things. You don't use 80% of the stuff you own. Follow the 1 in - 1 out rule. For each thing you buy, donate / sell / discard 1 thing. If you feel adventurous, make the ratio 1: 2.

I hope this powerful concept helps you in your personal and professional life. Share with someone who will benefit.

Further reading:

• Loss aversion: definition, risks in trading, and how to minimize.

• Loss aversion - everything you need to know.