Based on the writing of Daniel Kahneman and his work with Amos Tversky, I would like to further explore the relationship between bad events and risky behavior. I find much of their work is pertinent to the crises that plague our country today (e.g., politics and prejudice).  Greater understanding of human behavior and its predictability is the cornerstone to preventing large groups of people (e.g., citizens) from making poor decisions and educating them to recognize risky behavior and their consequences in the future.

Understanding that “losses loom larger than gains” is among Prospect Theory’s  (Kahneman & Tversky, 1979) many contributions to the fields of psychology and behavioral economics. That is, that a possible loss will be perceived as more important, arousing, or salient to an individual than a possible gain. This feeling will be acted on with an emotionally guided response – whether the person realizes it or not. Such an emotional response is contradictory to the Rational Choice Theory  in economics which views humans as rational decision-makers who are more likely to utilize probability and logic in their decision-making than to be swayed by emotion.

Furthermore, people who have more to loose (greater loss) will evaluate the likelihood of the loss occurring even more heavily and therefore be willing to take even more risk to avoid the loss. This pattern of over-weighting a threat of loss is not aligned with the actual probability of the event occurring, even if the probability is known (which it seldom is). The emotionally driven estimate given to the probability of an event occurring, has been referred to as “decision weights”  by Daniel Kahneman (2011, pp. 314-316). Except for a probability of an event being 0% or 100% (which are weighted as such) all of the rest of the probabilities and their aligned decision weights are drastically different from each other. For example, an event with a 1% chance of happening will be given a decision weight of 5.5 and an event with a 99% chance of occurrence will be given a decision weigh of 91.2; 98% chance = 87.1 decision weight; 50% chance = 42.1 decision weight… etc. (see Kahneman, 2011, pp. 315 for the table).

An example of this mismatch between the impact of gains and losses can be found in the study of positive and negative experiences, such as happy relationships (Kahneman, 2011). A happy relationship has been found to need approximately five positive encounters to any one negative encounter in order to remain a happy relationship. Another example is found in friendships. A friendship can take years to establish but can be quickly ended over merely one negative event. The unequal influence between negative and positive events can be seen in many areas of life including how humans recall negative events more easily. From accidents to bad news and even bad words, bad things are more salient and remembered and recalled more quickly and easily than good.

Examples of the quick recall of negative over good messages are often seen in politics. When one party tries to provide positive messages while the opposing party tries to instill fear, fear will have a bigger impact in the listeners’ memories (Kahneman, 2011, pp. 301). Unfortunately, that is contrary to the message most people want to hear. People argue for positive campaigns full of hope for the future but those in the know, realize that nature is working to protect humans from negative events by making a negative message stand out and stick in one’s memory longer.

So, if a candidate wants you to remember their message, they will likely be more successful if they state something negative about their opponent – especially if it arouses an emotion such as anger, disgust, or fear. A scary speech will stand out in the minds of the listeners, over a hopeful one. A more subtle example is that a negative face will stand out against a crowd of happy faces but a happy face in a group of angry, will not (Kahneman 2011).

As a matter of fact, any words that trigger our amygdala (an emotion related area of the brain) may trigger a cascade of neurochemicals which will alter our interpretation and memory of it. This may trigger a fight or flight response in the listener, resulting in an urge to side with or fight with the very messenger that they didn’t want to support in order to unify to fight the threat. An example of this is when both President Clinton and Trump stated that an attack against them was an attack against the country, in an attempt to make the people of the country then feel personally attacked themselves and want to fight back against the attacker (their accuser/s).

Kahneman also referred to the emotion of a decision in which “the anxiety of the second situation appears to be more salient than the hope in the first” (Kahneman, 2011, pp.315). He refers to the “psychology of worry” over the “rational model” and to a paper titled, “Bad is Stronger than Good”  by Baumeister, Bratslavsky, Finkenauer, and Vohs (2001) in which the authors examined the superior influence of bad events over good ones (Kahneman, 2011, pp. 316). They found that there were “hardly any exceptions” of people pursuing good over avoiding bad or being more influenced by good messages over bad messages. Again, that could shed some light on the state of U.S. politics.

An example that Kahneman gave to illustrate the unconscious motivation not to lose being stronger than the will to win was found in Pope and Schweitzer’s  (2011) study in which they analyzed over 2.5 million putts in professional golf (and yes, 2.5 million may be statistical overkill resulting in very small differences, as significant). They found evidence of “loss aversion” even in the most famous of pro-golfers, such as Tiger Woods. The golfers were more likely to sink a shot that kept them from going one shot over (a bogey) the average (par) than they were to sink a shot that would leave them one shot below (birdie) the average. Of course, the central limit theorem (more likely to be par) and the fact that these are superior golfers (making them less likely to go over par) comes to mind but I have to assume they considered that in their analyses.

The point of the example being, that people, whether consciously or not, due to heightened alertness and/or focus, possibly due to increased adrenalin from fear of a loss, show increased loss aversion and possibly increased risk seeking behavior – depending on their circumstances. Kahneman and Tversky illustrated these categories in their Fourfold Pattern (Kahneman, 2011, pp. 317). Many people will take terrible risks to avoid a “too painful” option which is very likely to happen, such as death or a likely loss (Kahneman, 2011, pp. 319). He refers to such a move as, when “the hope of complete relief [is] too enticing” and almost always a bad decision and completely irrational (Kahneman, 2011, pp. 319). This risk seeking behavior may be seen in taking on risky medical procedures or again might explain the drastic and possibly criminal lengths some politicians may be willing to go to in order to secure a win (e.g., USA) or at least increase their chances of a win (e.g., France), such as teaming up with shady cohorts in which they feel they need to keep their associations quiet indicating their guilt and knowledge that they are partaking in risky behavior in order to increase their chances of “not losing”(i.e., avoiding a loss). The avoidance of the original loss seems to loom larger than any possible new losses which may result from the risky behavior, such as public humiliation, loss of property or businesses, and even prison.

It is confusing, as to how one can be so focused on the win/loss-avoidance that no consideration is given to the new possible losses on the horizon that will come with the win that is acquired through risky behavior. Possibly, that is associated to personality variables that a narcissistic risk-taking person doesn’t consider the possible consequences of their actions because they always assume a win for themselves in the short term is all that matters. Their life experience has shown them that their behavior tends to payoff, at least for themselves (usually financially) even though they tend not to be good for a business (or a country) (Kahneman, 2011).  Why then would they partake in risky loss avoidance behavior in the first place? It feels a bit cyclical. If they didn’t believe they could lose in the first place, why take risky steps to avoid a loss? I guess it is possible that they don’t see their behavior as risky and don’t see it as “loss aversion” but rather “do anything to win”. They just believe that they will win the next stage of any conflict that arises from their risk-taking behavior because it always has in the past (they may even enjoy it) and they have never truly suffered any long term consequences for their actions (not even tax evasion). As this posts, we are yet to see if that is a wrong assumption or not.

Anyway, this concept of losses looming larger than gains can be found in all sorts of applications, such as bargaining or deal-making in which each side sees any compromise that they make to the other side as a loss. For example, Republicans vs. Democrats trying to pass legislation or business-to-business negotiations. One party’s loss looms larger in their mind than any gain they may acquire from the other party having a loss in the form of a compromise. Both sides feel the same way about any compromises they give and therefore neither ever feels good about the outcome. Unless, the only compromises they give are fake – in that they only put things up for compromise that they don’t really care about losing so they look like they had compromised to the other side. It’s all very unproductive and may have to due both with humans need for survival (i.e., money) and human’s evolutionary tendency towards in-grouping and out-grouping, us against them mentality (often seen in prejudice, religion, sports, and oppression).

I wonder if there are cultural differences in negotiating behavior based on these criteria. As I’ve mentioned before, there are cultural differences between how people value something they have in their possession to sell. In the United States, people are more likely to value their own belongings, far higher than they would be willing to buy it themselves. Yet, in other countries such as England, people were found to value their belonging to sell, at about what they would be willing to by it. These cultural differences, for one thing, make life much easier for the average person in England as compared to the USA and have been documented in various cultures and on both sides of the continuum.

I haven’t read yet, of a culture which would value the belonging for which they have to sell for less than they would be willing to purchase it but I am eager to look into that. I assume that too exists and it will be based on the reference point and life circumstances of the seller and possibly the buyer. For example, a seller who must sell something they highly value for less than it is worth because they must have money for food or shelter or to help someone else (altruism) whom could benefit much more from the item than themselves. That might be more circumstantial than cultural. Although, I know there are some cultures in Africa who value helping others, over personal belongings. There are also some cultures who don’t trust people with a great deal of belongings or wealth because that signals to them a likely lack of morals and/or ethics. Currently, I’m preferring both those cultures over my own (which has been found to ignorantly equate rich and beautiful with intelligent and benevolent) and hopefully we will all learn from them in the near future.

References:

Baumeister, R. F.,  Bratslavsky, E., Finkenauer, C. and Vohs, K. de (2001). Bad is Stronger than Good. Review of General Psychology, 5(4): 323-370. DOI: 10.1037/1089-2680.5.4.323

Kahneman, D. (2011).  Thinking Fast and Slow . New York, NY: Farrar, Straus, and Giroux.

Kahneman, D. and Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk.  Econometrica, 47(2): 263-291.

Pope, D. G. and Schweitzer, M. E. (2011). Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes.  American Economic Review, 101(1): 129-57.  DOI: 10.1257/aer.101.1.129