Loss Aversion is the human tendency to feel the impact of a loss twice as much as the impact of a gain. This is a fundamental principle in Behavioral Economics that was discussed in Prospect Theory, the seminal study of Nobel Prize winner Daniel Kahneman and the late Amos Trevsky. (To read more about this click Loss Aversion)
To describe this principle graphically, see image below:
As I’ve discussed in a few articles, this principle affects our investment decisions, but do you know that it also affects our love life decisions? Let me tell you how.
Exhibit A: “Hindi tayo talo!”
Most people avoid being romantically linked with their friends, their barkada. We always hear, “Uy, huwag, baka masira ang friendship.” This has resulted in a lot of promising romantic relationships that were not given a chance.
Even if the couple somewhat knows that they could actually have a healthy and great romantic relationship, the loss aversion on their friendship is too much that they won’t even try to develop it into something deeper. Moreover, the expected pain points of a break-up have a far greater impact compared to the pleasure of happy loving points of a possibly healthy and lasting relationship, brought about by already knowing and liking each other very well, both inside and out.
These hesitations sometimes result in both parties ending up with partners that are not as compatible with them as they are to each other. Stories like these end up in those Jollibee short films that make all of us go “Awww!” ? This phenomenon is graphically illustrated as follows:
I always say that we are better off being friends, good friends, first before courtship. Maybe because my decades-old happy relationship with The Honey developed that way. We were barkada in our first job at Far East Bank before courtship started. The advantage of having it this way – i.e. friends first before lovers – is that we already knew each other inside out, both our positive and negative traits, our cuteness, quirkiness, and obnoxiousness before we got into a relationship. Compare that to having courtship right away where you both always “put your best foot forward,” causing you to create that super wonderful images of each other, only to be disillusioned when reality sets in. So as I always advise the youth, “Surround yourselves with marrying types of friends, hahaha!”
Exhibit B: “Sayang naman ang pinagsamahan”
The other way loss aversion affects our love life is when we continue to cling on to an unhealthy relationship.
Again, the thought of losing someone is so great that we usually just go on and on with a relationship even if there are so many signs that we are better off without it. Before we know it, we’ve lost a good part of our adult life imprisoned in a toxic relationship. The thing is the longer you get sucked up into it, the more difficult it is to get out of it.
This loss aversion is so connected to another B.E. principle called Sunk Cost Fallacy. (To read more about it, click here) This is the principle that makes us stick it out with a previous decision despite evidence that it’s the wrong one because we put too much weight on what we will lose if we change course, instead of rationally assessing what will be the best for us moving forward.
There’s no easy solution to the above problems. At least awareness about the irrational and potentially harmful loss aversion in our human wiring could be your first step. So, come Valentine’s Day, before you order that ridiculously expensive bouquet of roses, buy that expensive gift, reserve that dinner, and go through terrible traffic, pause and think about it, “Are you still in a happy and healthy relationship that promises great adventures with your partner, or are you just being too loss averse at the expense of your true happiness?”
- If you haven’t listened to our nakakakilig Episode 6 of Mom and Son Podcast: Ligawan: Ganito kami noon paano na ngayon? you may click any of the following links below. Send in your comments and suggestions to AntonFausto@gmail.com. We’re interviewing Chris Tiu for our guest. If you want to ask him anything, you may email your questions to the same address. Here are the Episode 6 links:
You may also stream it via YouTube: https://youtu.be/DD-clpSkA58
- I’ll be giving a talk on Parenting Millennials and Generation Z as part of the Byahe Karunungan and Musical Festival at the Quezon Convention Center in Lucena City on February 23, 2019 (Saturday) from 10:30am to 11:30am. For ticket inquiries, contact Desiree Rea at 0917-399-5975.
- Watch for our FQwentuhan this Friday with best-selling author of “Vince & Kath” that was made into a movie, Queen Elly! You’ll learn a lot from her childhood money memory and FQripot tips.
- Thanks to those who already bought the FQ Book, especially to those who took the time out to send me their feedback. Your feedback is food for my soul. To those who have not gotten their copy yet, here’s a short preview of FQ: The nth Intelligence
You may now purchase the book in major bookstores, or if you want autographed copies, please go to FQ Mom FB page (click SHOP), or FQMom.com (click BOOKS), or email us at FQMomm@gmail.com
- Want to know where your FQ stands? Take the FQ Test Challenge now! Click link. http://rebrand.ly/FQTest
Rose Fres Fausto is a speaker and author of bestselling books Raising Pinoy Boys and The Retelling of The Richest Man in Babylon (English and Filipino versions). Click this link to read samples – Books of FQ Mom. She is a Behavioral Economist, Certified Gallup Strengths Coach and the grand prize winner of the first Sinag Financial Literacy Digital Journalism Awards. Follow her on Facebook & YouTube as FQ Mom, and Twitter & Instagram as theFQMom. Her latest book is FQ: The nth Intelligence.
ATTRIBUTIONS: Photos from pandagossips.com, livehappy.com, Pinterest.ph, Pinterest.ca, dreamstime.com, Blogspot.com, mrturn02.files.wordpress.com, thepeoplegroup.com, and vectorstock.com modified and used to help deliver the message of the article.