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a single cockroach will completely wreck the appeal of a bowl of cherries, but a cherry will do nothing at all for a bowl of cockroaches. As he points out, the negative trumps the positive in many ways, and loss aversion is one of many manifestations of a broad negativity dominance
the long-term success of a relationship depends far more on avoiding the negative than on seeking the positive. Gottman estimated that a stable relationship requires that good interactions outnumber bad interactions by at least 5 to 1.
Loss aversion refers to the relative strength of two motives: we are driven more strongly to avoid losses than to achieve gains.
The aversion to the failure of not reaching the goal is much stronger than the desire to exceed it.
Every stroke counts in golf, and in professional golf every stroke counts a lot. According to prospect theory, however, some strokes count more than others. Failing to make par is a loss, but missing a birdie putt is a foregone gain, not a loss. Pope and Schweitzer reasoned from loss aversion that players would try a little harder when putting for par (to avoid a bogey) than when putting for a birdie.
Loss aversion creates an asymmetry that makes agreements difficult to reach.
Because negotiators are influenced by a norm of reciprocity, a concession that is presented as painful calls for an equally painful (and perhaps equally inauthentic) concession from the other side.
Loss aversion is a powerful conservative force that favors minimal changes from the status quo in the lives of both institutions and individuals.
reference-dependent fairness
It appears that maintaining the social order and the rules of fairness in this fashion is its own reward. Altruistic punishment could well be the glue that holds societies together. However, our brains are not designed to reward generosity as reliably as they punish meanness. Here again, we find a marked asymmetry between losses and gains.
“They would find it easier to renegotiate the agreement if they realized the pie was actually expanding. They’re not allocating losses; they are allocating gains.”
some characteristics influence your assessment more than others do. The weighting occurs whether or not you are aware of it; it is an operation of System 1.
The assignment of weights is sometimes conscious and deliberate. Most often, however, you are just an observer to a global evaluation that your System 1 delivers.
the expectation principle, but applied it to the psychological value of the outcomes. The utility of a gamble, in his theory, is the average of the utilities of its outcomes, each weighted by its probability.
The large impact of 0 ➞ 5% illustrates the possibility effect, which causes highly unlikely outcomes to be weighted disproportionately more than they “deserve.”
The improvement from 95% to 100% is another qualitative change that has a large impact, the certainty effect
The certainty effect is also more striking than the possibility effect if the outcome is a surgical disaster rather than a financial gain.
It is difficult to assign a unique decision weight to very rare events, because they are sometimes ignored altogether, effectively assigned a decision weight of zero. On the other hand, when you do not ignore the very rare events, you will certainly overweight them.
Reducing or mitigating the risk is not adequate; to eliminate the worry the probability must be brought down to zero.
people attach values to gains and losses rather than to wealth, and the decision weights that they assign to outcomes are different from probabilities.
Of course, what people acquire with a ticket is more than a chance to win; it is the right to dream pleasantly of winning.
The thought of accepting the large sure loss is too painful, and the hope of complete relief too enticing, to make the sensible decision that it is time to cut one’s losses.
When you take the long view of many similar decisions, you can see that paying a premium to avoid a small risk of a large loss is costly. A similar analysis applies to each of the cells of the fourfold pattern: systematic deviations from expected value are costly in the long run—and this rule applies to both risk aversion and risk seeking. Consistent overweighting of improbable outcomes—a feature of intuitive decision making—eventually leads to inferior outcomes.
how terrorism works and why it is so effective: it induces an availability cascade.
The emotion is not only disproportionate to the probability, it is also insensitive to the exact level of probability.
Emotion and vividness influence fluency, availability, and judgments of probability—and thus account for our excessive response to the few rare events that we do not ignore.
People overestimate the probabilities of unlikely events. People overweight unlikely events in their decisions.
You do not always focus on the event you are asked to estimate. If the target event is very likely, you focus on its alternative.
Our mind has a useful capability to focus spontaneously on whatever is odd, different, or unusual.
If your attention is drawn to the winning marbles, you do not assess the number of nonwinning marbles with the same care.
The more vivid description produces a higher decision weight for the same probability.
focal attention and salience contribute to both the overestimation of unlikely events and the overweighting of unlikely outcomes. Salience is enhanced by mere mention of an event, by its vividness, and by the format in which probability is described.
there is general agreement on one major cause of underweighting of rare events, both in experiments and in the real world: many participants never experience the rare event!
When it comes to rare probabilities, our mind is not designed to get things quite right.
A rational agent will of course engage in broad framing, but Humans are by nature narrow framers.
broad framing blunted the emotional reaction to losses and increased the willingness to take risks.
In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes.
The outside view and the risk policy are remedies against two distinct biases that affect many decisions: the exaggerated optimism of the planning fallacy and the exaggerated caution induced by loss aversion.
Exaggerated optimism protects individuals and organizations from the paralyzing effects of loss aversion; loss aversion protects them from the follies of overconfident optimism.
money is a proxy for points on a scale of self-regard and achievement.
The ultimate currency that rewards or punishes is often emotional, a form of mental self-dealing that inevitably creates conflicts of interest when the individual acts as an agent on behalf of an organization.
finance research has documented a massive preference for selling winners rather than losers—a bias that has been given an opaque label: the disposition effect.
The investor has set up an account for each share that she bought, and she wants to close every account as a gain. A rational agent would have a comprehensive view of the portfolio and sell the stock that is least likely to do well in the future, without considering whether it is a winner or a loser.
Closing a mental account with a gain is a pleasure, but it is a pleasure you pay for.
The decision to invest additional resources in a losing account, when better investments are available, is known as the sunk-cost fallacy,
The fear of regret is a factor in many of the decisions that people make
Regret is one of the counterfactual emotions that are triggered by the availability of alternatives to reality.
Regret and blame are both evoked by a comparison to a norm, but the relevant norms are different.
Decision makers know that they are prone to regret, and the anticipation of that painful emotion plays a part in many decisions.
people expect to have stronger emotional reactions (including regret) to an outcome that is produced by action than to the same outcome when it is produced by inaction.
