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Avoiding Loss Avoidance

Win more deals by deflating irrational cost perceptions.

Avoiding Loss Avoidance

Every transaction involves costs and benefits. Managing those cost-benefit perceptions is pivotal to any deal, whether you're negotiating with customers, suppliers or employees.

People rarely make rational decisions, and cost-benefit judgments are no exception. We're particularly susceptible to the loss avoidance heuristic: a cognitive bias that predisposes us to weight losses twice as highly as equivalent gains. In other words, we'd rather avoid losing R10 than gain R10.

Loss avoidance isn't the only factor that can sabotage deals, but it's a common culprit. So how can you counter someone's hardwired tendency to inflate perceived cost?

#1 Contrast

Ideally we'd pre-empt loss avoidance before it even flares up, and one way to do that is by taking advantage of another heuristic: the anchoring & adjustment effect. This cognitive bias prompts us to use preceding data as a benchmark for future data, which we can exploit by contrasting costs with higher benchmarks.

For example, if you're negotiating with a customer, you could reference substitute purchases, industry averages, or other incurred expenses as benchmarks for your actual offer. As long as the referenced costs are higher, your offer is less likely to trigger loss avoidance.

#2 Convert

Deconstructing costs into smaller units can make them seem less onerous. One of the most popular tactics is to convert lump sums into a stream of smaller amounts (e.g. framing a R12,000 investment as equivalent to budgeting R1,000 per month or R230 per week).

Another way to use conversion is by expressing the same cost in a different notation. For example, "half a million" can seem less expensive than "five hundred thousand" because our brains instinctively process the numerical prefix (i.e. "half" vs "five hundred") first.

#3 Neutralise

Loss avoidance is more likely to flare up when we vividly imagine ourselves incurring the cost (e.g. seeing our bank account balance suddenly plummet). Therefore, by stripping away context and making it harder for someone to visualise the expense, you can neutralise loss avoidance.

This tactic is particularly common in the restaurant sector where currency symbols are omitted from menu prices (e.g. "200" instead of "R200"). You can also neutralise costs by using numerical colloquialisms instead of actual numbers (e.g. "half a bar" instead of "half a million").