Loss Aversion

Loss aversion is the notion that people hate losses more than they enjoy gains.

Studies show that people are more likely to lie and cheat to avoid losing something they already have than to acquire it in the first place. For example, say a person makes an innocent mistake. Then, to avoid injury to her reputation, she may intentionally lie to cover it up.

Loss aversion seemed to play a significant role in the General Motors scandal in 2014. For more than a decade, the company failed to recall cars with faulty ignition switches. Even as evidence of the defect grew, GM officials continued to deny that there was a problem to avoid the expense and embarrassment of a massive recall.

The desire to keep what one already has can be overwhelming. Indeed, the natural aversion to loss can lead us to make unethical and illegal choices that, ironically, might be more costly in the long run.