Loss Aversion

People find it more painful to lose something than to gain something equivalent. One interpretation is that people overvalue what they have because it is theirs. This leads to status quo preserving behavior.

  • Cutting Your Losses

    It becomes exponentially more difficult to make up for losses as they increase. A loss of 90% would need a gain of 900% to recover from it. Cutting your losses is important so that you don’t fall into the trap of an exponentially larger hole.

  • People Are Bad at Long-Term Thinking

    People are generally bad at thinking and making decisions about long-term consequences. Gate’s Law observes that people overestimate the short term and underestimate the long term. People are motivated by loss aversion which leads to status quo preserving behavior and biases people towards keeping things the same.

  • Zero-Sum Thinking Is Increasing

    Data from the World Values Survey suggests the population of high-income countries is getting more zero-sum in mindset. A possible explanation is that GDP growth at the time the cohort was born are correlated—if you see wealth growing you are more likely to believe there is enough for everyone and if you don’t see growth you are are inclined to believe people can only get rich at the expense of others.

  • Enthusiastically Rehire

    A simple heuristic for whether or not to let someone go is to ask yourself, “Would you enthusiastically rehire this person?”

  • It Only Takes Two to Make an Auction

    When it comes to selling an asset, it’s helpful to remember that it only takes two people to make an auction. Auctions result in higher sales prices as it’s not just the value of the thing being purchased, but the dynamics of winning. In the sale of a company for example, it’s not just about buying the company but preventing the other party from getting it.

  • Sink That First Stake

    Physically making progress on a project makes it much harder to undo due to loss aversion and the sunk cost fallacy.

  • Justificationism Secures Ideas Against Change

    One way to answer “how do we know…?” is to justify one’s belief by reference to an authoritative source or cornerstone of knowledge. This is, in effect, saying “by what authority do we claim…?” which seeks endorsement in order to have certainty. Justificationism as a theory of knowledge therefore resists change (or at least delays in a form of path dependence).

  • Techno-Optimism Is Rational

    Techno-optimists believe technology can solve the world’s most pressing problems. With the right knowledge, we can find solutions to climate change like abundant clean energy. Can we acquire the knowledge to build nuclear fusion reactors? Can we do it in time?

  • Status Quo Preserving Behavior

    People prefer to keep things the same due to loss aversion and take actions to inhibit or minimize change. This can be seen in work environments where there is stark resistance to a change in the product (product work is hard because it necessitates change), processes, or organization.