Loss Aversion

Loss Aversion and Optimism Bias in Marketing

loss aversion optimism bias

Possibly, the most optimal illustration of the loss aversion concept can be seen in casinos around all the world. There, hardcore gamblers and fun-seekers alike follow the same pattern: The initial round they play the slots in order to win. The 2nd round? It’s to recoup any losses.

The loss aversion theory teaches us that individuals would avoid a reduction in value rather than reap a reward. 

In advertising, it's a strong tool that may inspire purchases for the right demographic. By alerting customers of what they may lose from an action not taken by them now versus completing a buy is far more powerful than offering benefits. 

Make loss aversion work for you by working on your campaign with one of these tactics.

If you create ownership your audience become more prone to hang onto it. Think about the tag line for the traditional, clichéd infomercial: Try it for 1 month and send it back if you don't like it. This has been around forever because when the trial period's month is up, sending the product back feels like losing, and customers are more inclined to hang on an item. Loss aversion in its best form is when someone scrambles to buy a product just because he or she cannot be left out.

Retailers are adept by showing how many items are left in order to develop a sense of lack. You may be shopping for a brand new pair of shoes and once you select a size and color, you see the text pop up:

Hurry. Only two left.

This makes you feel anxious and you are more prone to purchase to avoid missing out on the pair of shoes you need.

Imagine you are at the drugstore and you are purchasing a bottle of shampoo. You see that your favorite brand has a promotion: One bottle is 20 percent off, but one bottle is all the regular price, however it comes along with a free travel conditioner. 

Loss aversion theory tells us that you are more prone to opt for the bottle with the free present, even when the value of the present is less than that of all the discount. That's because you do not want to miss out on the opportunity to receive a free present, no matter the value is.

What's more, a free present feels more concrete than a discount, making consumers seem just like they scored a deal with their decisions.

Lastly, probably the most efficient loss aversion advertising strategies simply outline the sense of loss a consumer may feel if she or he does not make the purchase. Frequently, this strategy focuses on not offering only the item in question but offering it beside two inferior products.

optimism bias in marketing

Optimism Bias in Marketing

Say that confidence bias may be a mere artifact, a product of the test paradigms utilized to appraise it. People say rational, impartial individuals would appear optimistic. The work by Adam J.L. Harris and Ulrike Hahn on a 2010 research paper criticized the claim that optimism bias is shown by people by rating. The paper claimed that optimism emerges as a result of a belief upgrading with neural correlates in the mind.

On a behavioral level, these studies suggest that, for adverse events, desired info is integrated into private risk estimates to a greater level than undesirable info. Nevertheless, using job analyses, simulations and experiments it has been shown that this pattern of outcomes is a statistical artifact.

To conclude, these results clarify the difficulties involved with studying human bias and cast further doubts on the status of optimism as a basic characteristic of healthful cognition. Since all risk estimates have to fit to a scale between 0% and 100%; this final quote from Thomas Friedman fits perfectly:

Pessimists are usually right and optimists are usually wrong, but all the great changes have been accomplished by optimists.