Episode 14: The Big Reason People Are Only Open To Their Own “Group-Think” Ideas: Self-Regulatory Fit and Persuasion


I want to walk you through a rather complicated paper that I think is pretty important; it’s called “Bringing the Frame Into Focus: The Influence of Regulatory Fit on Processing Fluency and Persuasion”.  It’s by Lee and Aaker from 2004.

The focus of the paper was the importance of what they call “regulatory fit”. Now this is not a term I would have invented, I personally think it’s clunky and doesn’t actually explain the concept, but I didn’t invent it, so I don’t get to name it.

The person who did invent it was researcher E. Tory Higgins in the late 1990’s. The regulatory fit theory examines the motivation of people (what they want), and how they go about achieving that goal (how do I get what I want?).

And just like there are liberal and conservative solutions to the same problems, regulatory fit theory says that people “orient” themselves when they solve a problem to either prevention, or promotion.

Unlike politics, people don’t always go with prevention, or always go promotion; it depends on the situation and the problem.

Promotion strategies, also known as “promotion focus” emphasize the pursuit of gains, or at least avoiding non-gains. Promotion focus is based on “aspirations towards ideals.”

Prevention strategies, also known as “prevention focus” try to accomplish the same goal, but from a different mindset. Prevention tries to reduce losses, or pursue non-losses. It often is invoked during the fulfillment of obligations.

Let me give you an example. Let’s analyze a road trip from Washington D.C. to Chicago from two different situations. The goal for both is the same, drive from the nation’s capital to Chicago.

In one group is a newlywed couple from Sweden taking a holiday in the United States for the summer. In the second group are two people who work for a Heating and Air Conditioning (HVAC) company. They have to make a series of repairs for their commercial clients, and therefore have been sent on this driving route from Washington D.C. to Chicago.

Both groups have the same trip, same stops, same time. So, in theory, their approach might be the same, but if you look at the situation from a regulatory fit theory analysis, you get different results.

The fun Swedish couple are probably using a promotion strategy. They want to have fun! They want to maximize their time on the trip and see as many cool things as possible. They want to take risks and climb mountains and drive on the Blue Ridge Highway (as this author can attest is very cool). They want to see Gettysburg and stay at weird hotels along the way. They have aspirations. They want to maximize gains.

The HVAC repair folks are probably using a prevention strategy. They just want the trip to go smoothly, and their clients to be happy. They don’t want hiccups, they don’t want flat tires, and they don’t want anything bad to happen. They want to minimize losses.

In both cases it’s the same trip, and both times people want the trip to go as well as possible; but they are oriented in different directions.

The same can hold true in a variety of political contexts. Right now, as I type this, immigration in the US is a huge issue. It’s a “hot-button issue” as they say. Generally, liberals in the US in the form of the Democratic party orient themselves in a promotion strategy on immigration. They are looking to maximize gains and talk about the benefits immigration can bring; more small business, greater cultural diversity, and higher economic growth for most (personal note from the economist writer, immigration is a net positive economically for the United States, but is a negative for some groups, mainly non-college educated white males).

Conservatives in the form mainly as the Republican party take a prevention strategy on immigration. They talk more in terms of a prevention orientation to reduce loss, such as reducing drug imports, stopping terrorist threats, reducing job losses, and not overcrowding the social safety net.

The reason the study that I mentioned earlier, “Bringing Frame Into Focus”, is important is that it dives into the effects orientation can have on how much a person likes a certain solution. The hypothesis they wanted to test was: do people treat solutions that are framed in the direction of their viewpoint more favorably? Does a better problem “fit” (either promotion or prevention) lead to a higher rating of the quality of that solution?

We’ve had a lot of talk recently about the “ideas bubble”. If you’re conservative you only follow conservative people on Twitter, and only get your news from conservative news sources. And if you’re liberal you are only friends with other liberals and only get your news from liberal sources. The effect being that both sides are shouting past each other because there is no sharing of ideas.

Many see this as a problem. I don’t want to frame it as positive or negative but it certainly is a “thing” that exists now. I feel confident in saying that the vast majority of Americans feel more polarized and split into factions, especially politically, than they have in the past.

I think this paper gives a big clue into why this is happening on an individual level. Why it is happening now is a much bigger conversation about trust in social institutions and technology, and a whole host of other topics I won’t get into now. But to have a good mechanism for why people like to be so tribal in their solutions is important.

To those who do see this polarization as a problem and want to try and fix it, let me give you this advice. A friend of mine specializes in racial inequality and gave me an interesting thought. We all have unconscious racial biases (check out https://implicit.harvard.edu/implicit/selectatest.html to take a test for yourself and see). She told me that having racial biases is okay on a personal level because we all are a little racist.  What’s important is that we recognize in what ways we have racial biases, and then work and act to negate those instincts. The important work that you can do to stop racism is not to stop the negative biases that exist because those are often already imprinted into us through society at a young age. Our brains automatically make “us” and “them” categorizations. Only the passage of time can defeat that by redefining the “us” as all humans, or at least not seeing “us” and “them” on the basis of race. Rather, the work you can do in this moment is understand the racist biases you have, be honest with yourself and with others, and then work to not make decisions based on those feelings. Understand, accept, and account for them. It’s sharing that understanding that will actually work towards ending racism, not pretending that the feelings don’t exist.

In the same vein, if you want to help stop the polarization it’s important is to understand, accept, and account for your self-regulatory orientation biases. To understand which way you are facing, and if the message you inherently “feel” bad or good about is logical, or just a feeling. Only by spreading that understanding, acceptance, and accounting for your orientation bias can the polarization be stopped. The brain will always win…

And that’s why framing is so important. We’ve talked about framing a lot, and this is another example that works qualitatively. The bias in how ideas are presented is fascinating because it is so antithetical to how we perceive ourselves. When we talk about number framing for example, it’s very interesting, and unconscious, but it’s sort of a mind trick. Look at this nifty magic trick I can do to make you act a certain way.

But we take our core believes very seriously. The idea that I could manipulate what strategy you think would best enact your core beliefs based solely on how I presented my ideas, how I “framed” my ideas, is scary! And insanely useful to people out there who work in the marketing field. Again, it’s because of this orientation and fit theory. Ideas presented in a way that are in the same orientation you are in will “feel” like a better fit, and therefore you’ll be more receptive to them.

So what did Lee and Aaker find in their research? It’s time to walk through it now.

Their first experiment had small groups of 5-10 people presented with ads for Welch’s Grape Juice. After the ads people rated a few questions on a 7-point scale including their attitudes towards the brand, with 7 being highest and 1 being the lowest.

People were split into a 2×2 condition. The first split was to get either a promotion condition, or a prevention condition.

The promotion condition had language in the ad such as “growing evidence suggests that diets rich in Vitamin C and Iron lead to higher energy levels,” and other gain maximizing language.

The ad in the prevention condition had language such as “growing evidence suggests that diets rich in antioxidants may reduce the risk of some cancers and heart disease”, and other language to minimize loss (of life due to a heart attack or cancer).

The second split in addition to the promotion vs prevention condition was the framing condition. People were even given a tagline for example of “prevent clogged arteries!” in the gain frame, and “don’t miss out on preventing clogged arteries”, in the loss frame.

As you can see, there was a nice split. Those who were prompted with a promotional regulatory focus had a better response when presented with opportunity for gain, and those who were prompted with a prevention regulatory focus had a better response when presented with the reduction of loss.

Both methods were effective, but how the message was framed changed based on the orientation.

Interesting stuff, but there’s lots more. Experiment 2 and 3 were similar as Experiment 1, but they included a perception of risk.

There again was an ad about mononucleosis (mono) this time, a relatively common but not fun disease. Exposure risk was manipulated by conveying that one could get mono from either frequent, or infrequent behaviors.

People in the “high risk” condition were told that they would be at high risk of getting mono from kissing, any kind of sexual activity, or sharing a toothbrush, razor, water, or soda, etc…

People in the “low risk” condition were told they were at high risk of getting mono if they got a tattoo, used needles, had a blood transfusion, or multiple sexual partners at the same time, etc…

The ads were then framed either in a gain condition or a loss condition. The gain frame ads said “enjoy life!”, and “know that you are free from mononuclousis.” The loss frame said things like “don’t miss out on enjoying life”, etc…

Results? Appeals that are low in risk are more effective when presented in a gain or promotion frame. Appeals that are high in risk are more effective when presented in a prevention or loss frame.

And this makes sense. When the risk of loss is low, like the newlywed couple, whose worse outcome is they have a “meh” vacation, we humans look to maximize gain. It’s a great biological adaptation strategy. Go take risks and maximize your potential rewards now while it’s safe. We naturally turn to a promotion orientation.

When the risk of loss is high, like the HVAC repair team, whose worst outcome is that they destroy millions of dollars in business and get fired and foreclose on their house, the great biological adaptation strategy is “be safe”. Minimize your losses; just get out alive. We naturally turn to a prevention orientation strategy.

This explains so many of our political framings as well. As I said earlier, immigration is a net positive for many groups of Americans. They adopt a promotion orientation.

But especially for those populations who experience immigration as a much larger threat to their livelihood, their community, and their career opportunities (again strongest among non-college educated white males), they take a prevention orientation. They are worried about losing their job to outside competition. They have a much higher fear of loss.

Therefore, messages that are oriented in the same direction that they are already facing will be much stronger.

Donald Trump was so effective with his message because so much of the discourse his supporters were hearing from other candidates was not in the same orientation they were in. They didn’t want to hear all these messages about how great the US economy was doing after the recession, or all the great things other establishment Republicans were going to do once they were elected. They were, and are, in a prevention orientation. They were trying to minimize losses.

President Trump soared in with a prevention message, that he would “make America great again.” That he’d stop drugs and people coming over the borders. That Washington D.C. was a corrupt swamp that needed to stop hurting America. His message was really, really effective. Very few other politicians were aligned in the same regulatory orientation as Trump and it carried him to the White House.

It’s the flip side of the wave President Obama carried to the White House in 2006-2008; “Hope and Change.” Here was a very upbeat message, that if elected he can maximize the gains American already has. But it was even stronger than his rivals and did especially well with the young people in his base that were in a promotion, gain maximizing, orientation. This author’s bet is that he would not have done nearly as well had the election occurred in 2009, in the heart of the Great Recession when more people had probably politically switched to a prevention orientation on many political topics.

There are countless more examples where this applies. But why is it so strong?

The theory is that people have an underlying perception about what message “feels right”. I quote the authors:

“When a message frame is consistent versus inconsistent with the way in which individuals naturally think about issues that involve positive versus negative outcomes, the message becomes easier to process. This ease of processing is subsequently transferred to more favorable attitudes”.

Connor Diemand Yauman, researched this idea that when people feel that information is easy to process then they process it differently (fluency) than when they feel that the information is difficult to process (disfluency).

It’s a brilliant idea so I want to make sure you caught it. When a message is in the same orientation you are in, the message literally becomes easier to process. The brain doesn’t have to spend time and energy and resources figuring out why this information doesn’t align with what I’m already thinking. It all makes perfect sense in the world, and the brain speeds it along. It’s familiar. And when things are familiar, they are processed faster, which makes them “feel” better, and more correct.

We’ve already covered a few studies in which recognition leads to more positive receptions. You process it fast, it feels good, and it fits with your self story. The orientation regulatory bias is that your brain simply says, okay, cool, that sounds right. I agree with that. And you move on.

You like messages you don’t have to think about. You like messages that fit and make sense to your self-story.

The smart researchers decided to test this theory! Because here we don’t simply spout ideas about why the world is the way we think it is… WE BACK IT UP WITH DATA! They wanted to test if indeed faster processing of a message (which they call “processing fluency”) when the message was aligned with their regulatory orientation.

The researchers used the same setup as Experiment 1, with the Welch’s grape juice. However, this time they did so on a computer, with words that flashed on the screen that they had to write down. It’s called a perception test and is pretty common. Because the words only flash briefly (we’re talking 50 milliseconds), the idea is that if you process some words faster than others, you’ll be able to perceive and write down more of those words. Simple enough right?

There were lots of random words that flashed, and then 8 target words. Four were promotion focused (enjoy, active, energy, vitamins), and four were prevention focused (disease, arteries, cancer, and clogged).

Remember the promotion group was told juice would give them more energy, and the prevention focus told they would reduce the risk of disease.

Results?

You can see that in the promotion control group far more words associated with promotion were perceived, and in the prevention, far more prevention words were perceived. This is clear evidence that supports the hypothesis that faster processing of a message occurs when the framing was in the same orientation as person.

The research paper quotes: “In sum, results from Experiments 4A and 4B provide evidence that participants experimented greater processing fluency when message frame was compatible with regulatory focus.”

In Experiment 5, they asked for how effective the message was. And I’ll let the paper’s authors sum this Experiment up quickly for you (you’ve already been through so much):

“[I]n high regulatory fit conditions, more support reasons came to mind, and heightened effectiveness was perceived by participants. However, it was the perceived effectiveness that appeared to directly impact brand attitudes, thereby shedding light on the specific nature of the processing fluency mechanism.”

So to tie it all together then:

“Our results demonstrate that enhanced processing fluency associated with higher eagerness and higher vigilance under regulatory fit conditions leads to more favorable attitudes. Thus, the current research shows that processing fluency may contribute to the “feeling right” experience that is transferred to subsequent evaluations of the product.”

What they are saying here is what I’ve already explained. The processing fluency, aka, the ease in which a message that is oriented in the same way your regulatory orientation already is contributes to the “feeling right” experience. Because it “feels right”, you rate that product, or that message as more favorable.

Obviously this has loads of marketing potential. But it’s very important to know which orientation your audience is, or your message won’t land. That’s why it’s so easy to tell people what they want to hear. Selling Coke to people who already drink Coke is easy because that population of people already like Coke. It’s a much harder task to try and get people who think soda is bad for you to drink Coke.

Okay, so obviously there are huge political implications, and important marketing implications. Let’s sum things up with some takeaways:

People have self-regulatory orientations. On different topics they can either have promotion orientation, to maximize gains, or prevention orientation, to minimize losses.

When messages are framed in the same orientation people are in, they are more effective and better received. This is because messages in the same orientation are processed faster, and therefore “feel” better.

If you want to be successful in any sort of voting contest where it is between a few choices, it is best to use a message that is framed in the correct orientation as your target audience. If everyone is in the same direction, including your competition, be the loudest voice. Either be the most preventing loss, or the most maximizing gain to make yourself stand out to a “base”.

If at all possible, do both! Be preventing losses to one crowd and maximizing gain to another.

 

Lee, A. Y., & Aaker, J. L. (2004). Bringing the Frame Into Focus: The Influence of Regulatory Fit on Processing Fluency and Persuasion. Journal of Personality and Social Psychology86(2), 205-218. doi:10.1037/0022-3514.86.2.205

Episode 10: How Sunk Costs Work

One of, if not the most, important motivator in behavioral economics is the fear of loss. We’ve talked about this extensively and it takes many different shapes. One of my personal favorites is what’s known as a “sunk cost”.

Compared to a lot of behavioral economics terms this is pretty popular and well known, but just in case let me mind-journey for you.

You’re really hungry. It’s a hot Chicago summer day and you’ve had a long day at work.

On your walk home on the corner is a friendly neighborhood torta foodtruck. Oh my god. You love tortas. The thought of savory Mexican jamon (ham), topped with avocado and all the fixings with amazing green chili hot sauce and crema between bread carries you away. The smell hits you and you’re again reminded that there is a god. The cost is $8 for a sandwich. Even though you have leftovers at home that you can eat, you decide to stop and order one. You’re hungry and it’s after work; time to treat yourself (#treatyoself).

You wait in line, pay your $8 cash, and get your perfect torta. Warm juices of salsa and jamon dribble down the sides. Your mouth waters. However, unbeknownst to you, years of freezing ground has pushed up a part of the sidewalk by 3 inches. Your foot catches the ledge and your perfect torta flies out of your hand into a dirty puddle; gone forever.

You turn around and there’s now a line around the block to get another one. What do you do? If you had not just already stood in line for forever you would have been overjoyed to stand in line and pay $8 for a torta. But dejected you droop your head and go home to your leftovers.

Okay! Mind-journey over. What is interesting about that story is that if you wrote a computer program that would make decisions for you the calculation is different than what happened in real life.

You were hungry and willing to wait in line and pay money for a torta. You lost a torta so you didn’t eat one and are still just as hungry. Your situation hasn’t changed, and a computer program would say that humans would get back in line and wait again.

But your lost torta is a sunk cost. You paid for it, and it’s gone. In theory, sunk costs should have no impact on your next decision. It’s sunk, it’s gone. But, of course it has an impact on your decision-making process. It shouldn’t but it does.

It’s partially because we humans have a fear of loss, and partially because we have trouble segmenting time and decisions. We lump things together. So even though the calculation should be would I pay $8 for a torta, because we’ve already lost one we can’t help feeling like we’re paying $16 for one torta, even though that previous loss is immaterial to our next decision.

This effect creeps up all over the place. We’ll talk about it more later, with for example the gamblers fallacy, where gamblers feel that if they’re on a losing streak they should keep gambling because their luck is going to turn around…

Okay so how does this idea manifest itself? When humans make decisions, they can weigh the emotional experience of a sunk cost as value and make what on paper is an “irrational” choice. Or a choice that is against their own self-interest.

There are a lot of great papers about real life experiments demonstrating the effect. I’ll stick with one by Arkes and Blumer from 1985, The Psychology of Sunk Cost. They asked a series of questions. Here’s a slightly modified version of the first experiment:

“You have spent $100 on a ticket for a weekend ski trip to Michigan. Several weeks later you buy a $50 ticket for a weekend ski trip to Wisconsin.

You think you will enjoy the Wisconsin ski trip more than the Michigan ski trip. Suddenly you realized your just-purchased Wisconsin ski trip is the same weekend as the Michigan trip! It’s too late to sell either ticket, and you cannot return either one. You must use one ticket and not the other. Which ski trip will you go on?

$100 ski trip to Michigan OR $50 ski trip to Wisconsin?”

Think about it and write your answer down.

THE ANSWER SHOULD ALWAYS BE WISCONSIN!

It literally says, “you think you will enjoy the Wisconsin ski trip more”.  Forget the price or what you purchased. The Wisconsin trip is the better trip! Go on the better vacation! Why would any pick a worse vacation?

Of course, 54% of respondents picked the Michigan vacation, and only 46% picked Wisconsin.

People who pick the Michigan trip say it’s because they don’t want to “waste the money.” But that money is already gone. It was spent and is a sunk cost.

Obviously, a fascinating result. And there are other questions that are variations on this theme.

The other interesting result was an experiment researchers did at the Ohio University Theater. People who bought season tickets were put into one of three conditions. One group got the normal price, one got a $2 discount (on each $15 ticket), and the third got each ticket for $7.

Results? The no-discount group used significantly more tickets (4.11) than both the $2 discount group (3.32) and the $7 discount group (3.29); but only for the first half of the season. There was no significant difference in the second half.

Now there are potentially a few factors at play. The first is sunk cost. After purchasing a season pass, those that paid full price felt compelled to go and not “waste money”. Even though it’s a sunk cost. Those who paid less had a smaller sunk cost effect.

The second main factor that may be operating is that people who pay more may give the concert tickets a higher value. The higher value is because it’s “worth” more for those who bought at full price than those who bought at reduced price.

Either way, the fact that the effect was time limited and faded after a few months is another interesting twist. The study doesn’t present a causal link, but there are a number of behavioral economics effects that seem to fade over time.

The takeaway here is that the sadness of a sunk cost may fade over time, and eventually fades away to a point where it truly is sunk. Maybe it’s just people’s way of processing grief. I know this author would grieve a lost torta.

So again, your mileage may vary. The effect may be strongest at the moment of “sunk” (think torta on the ground). And then its magnitude (technically amplitude) fades over time as the person goes through acceptance.

What are some real world applications?

Use the fear of sunk costs to stop customers from switching. Try breaking a payment in half or into smaller payments, and make each payment final.  For example, tell the customer that they can’t complete the training without finishing the entire payment. This will trigger the fear of loss due to a sunk cost. The customers will want to pay to finish the training.

Conversely, if a customer feels like their payment has been wasted somehow, they will be much less likely re-up to get back to their starting position. This can generate a lot of negative emotions; even if it’s not even your fault.

For example, let’s say someone gets $800 of car work done and then the next week finds out that they need another $800 done on a different part of the car. They’ll be very hesitant to do so because of the sunk cost even though the two are unrelated. They should pay for both repairs, but the sunk cost and fear of loss will make them warry of spending more.

So that’s sunk costs. I hope you sunk some effort and energy into this topic! You’ll never get it back; it’s sunk.

On a personal note. This can apply to relationship and other personal feelings too. Letting go is hard. It’s a feeling of loss that we can’t get back. It really sucks. But this author’s personal advice is to take a deep breath and remind yourself that a sunk cost is gone. It’s just that; sunk and unsalvageable. You can’t get it back, and feeling bad about things doesn’t help anything. Use some mental scissors. Clip away the old circumstances and make your current situation the only factor that matters and make your decision from there. It’s the best way to move forward; even if it’s hard to do.

 

Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes35(1), 124-140. doi:10.1016/0749-5978(85)90049-4

Episode 4: How trying to avoid regret changes our behavior

Let’s talk about regret aversion. Again, fancy phrase, simple idea. Let’s go on a mind-journey!

Imagine this.

You’re at home cleaning out an old shoe box of junk. I mean, you’ve had this stuff forever since you were a kid. But do you really need that candy bar from 17 years ago that you’ve been keeping just to “see what happened in 10 years?” No. No you don’t.

You’re rifling through your items while sitting on the floor, and sifting things into keep or trash piles. Suddenly you spot under some papers a small pack of NBA basketball cards held together with a rubber band. Man! You’d forgotten that your uncle used to buy you these as a bribery present so you’d like him whenever he came to visit.

You did really like them though, so bribe accepted. You ponder that maybe you should be bribing your own nieces and nephews more. Nodding your head as you have learned another lesson about adulting, you pop the rubber band off and take a look to see what you’ve got. Boring. Retired. Meh. OH WOW! It’s a rookie Shaq card. What a find!

You of course know from your great NBA knowledge that Shaq exploded onto the NBA as a rookie, averaging 23 and 14 and instantly dragging the Orlando Magic into the realm of interestingness, only to leave for the Lakers like everyone else, casting Orlando back into uninterestingness until the disaster that was Dwight Howard a decade later.

But this card is worth money. You do some quick research online and find out that this card is actually part of a famous run by a famous brand, is really rare, and in very high demand. You get in touch with a dealer and you negotiate him up to $1,200 for the card. You’re worried you can get a better deal, but there’s no point in holding on to the card. And hey! You forgot you had it, it’s like finding a free $1200 right? It seems like a fair deal.

Full of confidence you pull the trigger and make the deal.

You get the deposit in your Paypal account and spend it to pay down some credit card debt. Sighhh. Life.

Not two weeks later you’re checking out the news on your favorite site and there’s a breaking news alert! OMG! Shaq tragically just passed away far too young. You can’t believe it and neither can anyone else. Memorials are held. Jerseys re-retired (and re-released), and memorabilia sales explode.

With baited breath you terrifyingly check the dealer’s website a few weeks later out of dread, and sure enough, there’s YOUR card, being resold by the dealer for over $13,000.

Gulp.

“Why did I sell that stupid thing! Ugh I knew I should have held onto it. I could have made so much money!” You feel pangs of regret, and have trouble relaxing for a day or two until you go to the gym a few times and play some video games to get it out of your system and let it go.

You have to stop watching all the Shaq memorial coverage. Too many bad memories about your card and what could have been (money).

So that’s regret. Regret aversion is simply the fear of this situation. It makes us doubt and  second guess ourselves. We try really hard to avoid these feelings of regret (that’s the aversion part). There many types of regret, and some types of regret are stronger than others.

A study done by Seiler, Seiler, Traub and Harrison called “Regret aversion and false reference points in residential real estate” tried to test for regret aversion. They did so with simple questions where subjects were asked to assess their regret on a scale of 1 to 9, with 1 being low, and 9 a high level of regret.

The hypothetical situation the subjects were given was that they “purchased” a home for $200k five years ago. Today it’s worth $300k. That’s great news, right? There were two conditions, with half the people in each.

The first condition is “omission”. In the “omission” condition the participants find out that two years ago they could have sold the house for $350k, but were not aware of the potential sale at the time.

The second condition is “commission”. In the “commission” condition they knew two years ago that they could have sold the house for $350k, but believed the price would keep going up and did not pull the trigger.

In both conditions they still made the same amount of money ($100k). Their happiness with the sale should be the same, right?

Well, overall, people in the “commission” condition who could have sold the house, but chose not to, had statistically significant higher levels of regret than those in the “omission” condition who were unaware of a potential sale (4.69 regret vs. 5.08 with knowledge).

The bottom line is that people feel more regret when they lost something but feel like they had the control to make a different decision.

To a certain extent this is part of the fear of loss which I will talk about a lot more. But fear of loss manifests in many different ways, and this is just one of them.

Even though the end result is the same, learning that we could have made more money, but that we messed up, made a mistake, and sold at the wrong time, feels worse.

If we had no control over the situation and did not know that we had the option to sell the house at a higher price, then we can shrug and say “It was fate. I’m not responsible; Jesus take the wheel.”

It’s an act of god and out of our hands, we never lost what we could never have achieved. But when we had it in our hands, but then lost it because of our own mistakes; that’s troubling.

When we mess up we feel regret aversion. The next time we have to make a decision, we don’t want to make any decision. We freeze because we’re scared of making the wrong choice. Of selling a week too soon, or a day too late.

Like everything else in the 100, this is one of those peculiarities that causes us humans to make decisions and choices that are not the most logical or predicted by a computer. It’s not a simple sum choice utility function. It’s complex weird primate brains.

So let’s talk real world implications.

You can drive action by stimulating people’s fear of loss. Businesses do this all the time (the deal ends in 4 hours! better buy now).

For example, if you want to make people more cautious about selling stocks, send them alerts about all the times they could have sold their stocks for more money, but now it’s worth less. This strategy might actually cause them to switch partners, so maybe it’s something to avoid, but it certainly would stimulate a fear of loss.

Giving people information, so they have the decision in their hands, and then mess it up, will stimulate more regret aversion.  It’s certainly a tool in your arsenal that you should consider using when needed.

Give it a try! Did you find any difference? This is an especially tricky one to test because it is so specific, and also occurs over a period of time. But it’s fascinating to discuss.

 

Seiler, M., Seiler, V., Traub, S., & Harrison, D. (2008). Regret aversion and false reference points in residential real estate. Journal of Real Estate Research, 30(4), 461–474.