The bad weigh more than the good

During assessment in decision-making, we put more weight on the bad than on the good. This is called loss aversion.

• Loss aversion refers to the fear of losses over the affinity to gains. Mostly it is perceived at the ratio of 1.5–2.5 to 1. The psychological values of gains and losses level off when the amount gets bigger (similar to the utility of wealth). The exact amount, of course, also depends on the reference point. When a bet induces extreme loss aversion, we may turn down very favourable opportunities (Kahneman; ch. 26).

If the decision is about whether or not to make a change (to the existing status quo), despite the advantages this change may bring, loss aversion makes us tend to stay unchanged.

• ‘What’s in it for me?’ (WIIFM) factor is another criterion on which whether trust leap would happen depend. Based on our understanding of an idea, we assess whether trusting it will make our lives in some way better or not. We do not necessarily need to understand how it fully works (cf. counter-proof of measles, mumps and rubella [MMR] vaccine). Given that we psychologically are not ‘risk mutual’ (i.e. We do not value gain and loss in the same weight), we often conclude in sticking to the current situation (cf. Tesla’s autonomous car). The point when people understand the value outweighs the risks is the moment when people would take the trust leap. (Botsman; ch. 3).
  ==> [Trust is the basic unit of human connection]

• The relative gain or loss also plays an important role on top of that. A risk for a sure gain / maybe gaining nothing is evaluated differently than a risk for a sure loss / maybe losing nothing. Even though the eventual quantity of wealth for two persons is identical, the background and the change induced alters the meaning of the bet, and thus the final psychological state. This explains why entrepreneurs and chiefs tend to seek risks, and less-earning wives tend to seek settlement for alimony whereas more-earning husbands tend to go to court (Kahneman; ch. 25).

Last update: 2020-06-20

References

Botsman, Rachel. Who Can You Trust? How Technology Brought Us Together and Why It Might Drive Us Apart. Perseus Books, 2017.

Kahneman, Daniel. Thinking, Fast and Slow. 1st ed., Farrar, Straus and Giroux, 2011.