Loss Aversion

Your constantly-updated definition of Loss Aversion and collection of topical content and literature

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What is Loss Aversion?

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.

Literature on Loss Aversion

Here’s the entire UX literature on Loss Aversion by the Interaction Design Foundation, collated in one place:

All literature

Loss Aversion Theory - The Economics of Design

Loss Aversion Theory - The Economics of Design

If people were rational then the feelings invoked by losing something or gaining something (of equal value) ought to be the same. We should feel as pleased that our friend has just given us $100 for our birthdays as we feel bad that we have lost $100 when we forgot to take it from an ATM machine.In reality this isn’t the case. Psychologists and ...

  • 367 shares
  • 2 years ago
Introducing Game Mechanics for Gamification

Introducing Game Mechanics for Gamification

Every form of design features special techniques which can take a design from “OK” to “amazing”. Gamification is no exception. Game mechanics are the vital components of gamification which transform this form of design from “adding features” to “adding fun”. Janaki Kumar and Mario Herger, in their book, “Gamification at Work: Designing Engaging ...

  • 316 shares
  • 1 year ago
Loss Aversion – Really, What’s the Worst that Can Happen?

Loss Aversion – Really, What’s the Worst that Can Happen?

There’s a cognitive bias that makes us sadder to lose something than it makes us happy to gain it. This causes us to be afraid of loss – even when that fear is illogical. It prevents us from taking small risks to make big gains, for example. Overcoming loss aversion can help you build better products and manage your life in a more objective mann...

  • 462 shares
  • 2 years ago
Prospect Theory - The Economics of Design

Prospect Theory - The Economics of Design

Economists once assumed that every actor in an economic system would be rational. That people would calculate the value of what they had and what they could have in the future accurately and that they would make their decisions based on that calculation. Unfortunately, in practice this was rarely the case – in fact traditional economic models an...

  • 360 shares
  • 2 years ago
Endowment Effect - The Economics of Design

Endowment Effect - The Economics of Design

The Endowment Effect is a contradiction of the classical economic idea that people always behave rationally within an economic system. It is the surprising idea that we are prepared to pay more money to retain something that we already own than we would pay for the item if we did not own it. It is often also shown that we are unwilling to trade ...

  • 295 shares
  • 2 years ago
Fear of Loss Provides Motivation to Buy

Fear of Loss Provides Motivation to Buy

We often talk about creating positive emotions through design; we look to make clients happy and users comfortable, etc. but rarely do we talk about making them afraid. Of course, unless you’re selling horror movies, you probably won’t want to terrify your clients; however, there is a good argument for tapping into basic fear in your designs in ...

  • 270 shares
  • 1 year ago