Thinking, Fast and Slow. 28. Bad Events

Following the schedule of our Reading Calendar

Evolution has endowed us with a bigger sensitivity to bad things than to to good ones. That makes perfect sense since avoiding dangers efficiently contributes more to the survival of an individual than taking advantage of opportunities. What is good and what is bad is sometimes hardwired in our nervous system but sometimes is relative to a perceived reference point.

Loss aversion is a particular case of this universal asymmetric sensitivity. We value much more a loss than an equivalent gain. At first sight, this is shared wisdom and should surprise no one. The chapter tries to convey the idea that implications of this phenomenon go much deeper than what can be seen at first sight and offers us several examples.

Two appear to me as the most relevant.

First, it explains the universal resistance to reform, no matter how evident its gains may seem and how deficient the current situation may be. Those few that are going to loose with the change are going to fight much more that those who may end up gaining with it.

Second, it introduces the idea that economic action has to take into account perceived fairness.

This second point came as a revolution in the rational human based economic theory but I suspect that this ideas have been used in marketing and business for centuries. Everybody knows that if you want that those who can pay more to pay more, instead of raising the price for those who have a job, you have to raise the price for everybody and then make discounts for unemployed. The result is the same and you will be loved instead of despised.

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