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Humans Fear Loss More than Hoping for Gain

Summary

In the battle of risk vs. reward, risk wins every time. Whenever people are placed in a mindset of trying to maximize gain, they will tend to be conservative, going for the sure thing. When in the mindset of reducing loss, they will suddenly be willing to gamble.

The Science

Participants were told the following in two cases:

1. Imagine you have $300 more than you have today. You can now choose between gaining an additional $100 right away, or flipping a coin to receive $200 (or nothing).

In this case, participants tended to to be more conservative. Taking the $100 and not risking it.

2. Imagine you have $500 more than you have today. You can now choose between losing $100 right away, or flipping a coin to either lose $200 or nothing.

In this case, participants tended to become gamblers. Preferring to flip a coin and try to come out without a loss.

The Practice

The takeaway from these experiments, and many more like them, is clear: People fear loss more than they hope for gain. This way of thinking should change the way we frame our offers.

One way this concept is used is using limited time offers. since we don't like to take risks in gain, telling us that this great offer is here for a limited time only, will often pressure us to pay right away, for fear of losing out.

On the other hand, when trying to convince us to go premium or join a higher subscription level, framing the question in the form of risk mitigation is the way to go.

"Your current plan protects you from 90% of all viruses and malware. By joining our premium plan, we can protect you from 99.9%."

If the auto-save message is not well highlighted, and a save button not easily located, users will leave a tab open forever, for fear of losing their work.

Once a few hours pass by without facebook or twitter, the fear of losing out begins to rise within us. What could our friends be doing that interests us? Perhaps this is why studies find the average teenager checks facebook 150 times a day.

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