Loss Aversion Theory - The Economics of Design
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Loss aversion is a behavioral economics concept referring to people’s judging the avoidance of loss as being more important than the acquisition of equivalent gain. That is, the unhappiness of losing $10 is greater than the happiness of finding $10. Loss aversion influences decision making and plays a part in determining the appropriate copy to use in designs.
Loss aversion was coined by researchers Amos Tversky and Daniel Kahneman, who conducted a number of experiments on decision making. Their experiments show that potential losses have twice the impact on happiness than potential gains do. This means that if the average person must risk something in order to gain something, that individual will want the gain to be at least twice as much as the risk.
Loss aversion carries a heavy implication for designers—how we provide information on webpages and interfaces where users have to make decisions is therefore crucial. How we describe potential losses and gains will affect how likely people are to purchase something or choose an option. For example, it is better to frame an option in relation to what people stand to lose, rather than what they stand to gain, if they choose it—unless the potential gain is very high. Understanding the human tendency to (quickly) “assume” ownership of an item/service enjoyed on a free-trial basis is likewise valuable here—the prospect of losing free merchandise/privileges is part of the dynamic of loss aversion.
Here’s the entire UX literature on Loss Aversion by the Interaction Design Foundation, collated in one place:
Take a deep dive into Loss Aversion with our course Get Your Product Used: Adoption and Appropriation .
Designing for user experience and usability is not enough. If products are not used—and it doesn’t matter how good they are—they will be consigned to the trash can of history.
Sony’s Betamax, Coca-Cola’s New Coke, Pepsi’s Crystal Pepsi, and McDonald’s Arch Deluxe are among the most famous products which made it into production but failed to wow their audiences, according to Business Insider. In fact, Harvard Business Review dedicated a long piece to “Why most product launches fail”—so it’s not just big brands that aren’t getting their design process right but a lot of businesses and individuals, too.
So, what is the way forward? Well, once you’re sure that the user experience and usability of your product work the way you want them to, you’ve got to get your designs adopted by users (i.e., they have to start using them). Ideally, you want them to appropriate your designs, too; you want the users to start using your designs in ways you didn’t intend or foresee. How do we get our designs adopted and appropriated? We design for adoption and appropriation.
This course is presented by Alan Dix, a former professor at Lancaster University in the UK and a world-renowned authority in Human-Computer Interaction. Alan is also the author the university-level textbook “Human-Computer Interaction.” It is a short course designed to help you master the concepts and practice of designing for adoption and appropriation. It contains all the basics to get you started on this path and the practical tips to implement the ideas. Alan blends theory and practice to ensure you get to grips with these essential design processes.