Let’s imagine that we are in a contest and we are offered two options: give us a total of 1000 euros or risk winning 1200 euros with an 80% chance of getting them (although with a 20% chance of not getting anything).

What would we do? It is possible that some would decide to risk the second option, while many others would opt for the safer option .

This difference is due to the presence of different ways of thinking and the presence of different cognitive and emotional tendencies and biases. In the case of those who choose not to take risks and get the least amount but safe, their action can be largely explained by the concept known as aversion to loss, which we will discuss throughout this article.

Aversion to loss: what are we talking about?

The name loss aversion is given to the strong tendency to prioritize not losing over winning . This tendency can be understood as a resistance to loss due to the high emotional impact that the possibility of losing generates, a possibility in fact that the presence of losses generates a much greater emotional activation than that which causes a possible gain (specifically around two or two and a half times more).

This is a type of heuristic or mental shortcut that can cause a cognitive bias that favours non-risk behaviour for fear of loss: we may not take risks to obtain a more useful good or even risk and lose more than necessary if we are trying to avoid a loss. We give what we have more value than what we can gain, something that means that we tend to try to avoid losing above all else unless what we have to gain is very attractive .

We must bear in mind that the aversion to loss is not good or bad in itself, and deep down it has an evolutionary meaning: if we have a food source a few metres away but we can see a predator several metres away, it is possible that taking the risk will cause us to die. Or in the example of the introduction: we are going to take 1000, do those 200 extras compensate for the possibility (even if it is small) of not winning 1000?

Fundamental point of prospective theory

This concept is one of the key elements of the prospective theory of Kahneman and Tversky , who investigated human decision making and developed the hypothesis of expected utility (which establishes that before a problem or situation in which we have to make a decision, we tend to choose the option that we consider most useful in terms of cost/benefit). Thus, loss aversion is contextualised in the decision-making framework, and is based on the belief that risky behavioural choice can lead us to experience higher costs than benefits.

However, even if this aversion to loss exists, it does not mean that our behaviour will always be the same. Our choices depend largely on the frame of reference from which we start: if we are faced with a choice that can win us over with certainty, we tend to opt for the most likely option even if it is a minor one, whereas if we are faced with a choice that can only generate losses for us the behaviour is usually the opposite (we prefer to have an 80% chance of losing 120 ? instead of having a guaranteed loss of 100 ?). This last aspect leads us to have to indicate that the aversion to loss is not an aversion to risk itself: we can risk losing more instead of losing a smaller fixed amount.

It is important to note that this aversion to loss is not always as strong: it is not the same to guarantee 100 euros or to be able to reach 120 euros as to guarantee 100 but to opt to win 100,000. How relevant it is to us, or in other words the incentive value, that has the stimulus in question that we can achieve is also a factor that can influence our choices.

In what areas does it affect us?

The concept of aversion to loss has been generally associated with the economic , valuing for example the behaviour in business environments, games of chance or stock exchange. However, we are talking more about behavioural economics, not only monetary.

It is necessary to take into account that the aversion to loss is a cognitive bias that is present in other facets of life: it forms part of our decision making at the level of employment, studies (an easy example to see is when we are faced with a test with a penalty for error) or even when establishing action plans.

Aversion to loss has also been observed in behaviour in the face of aversive emotional stimuli, and this tendency has even been analysed in subjects with psychopathologies such as major depression, in which aversion to loss seems to occur to a greater extent and to generate a lower tendency to act at risk than in non-clinical subjects.

Neuroanatomical involvement

Loss aversion has generally been studied at the behavioral level, but some studies (such as Molins and Serrano’s 2019) have also investigated what brain mechanisms may be behind this trend.

The different studies analysed seem to indicate that there are two systems, one appetizing and one aversive , that interact and allow us to make a decision. Within the first one, which would be active when possible gains are recorded and not when losses are faced, and which is associated with the search for rewards, the striated and a large part of the [frontal cortex](/neurosciences/prefrontal cortex) stand out. In the second, the aversive, the amygdala stands out (something logical if we think that it is one of the structures most linked to fear and anger) and the anterior insula, in addition to other brain regions.

Although these systems are complex and it is still not entirely clear how they work, when the subject is faced with an election in which he can lose, the appetitive system is deactivated (unless it is considered that what can be gained is sufficient incentive to take risks) and at the same time the aversive system is activated. This would make that at a cognitive and behavioral level there would be a reluctance to lose. Likewise, it is suggested that there may be patterns of brain functioning that, even without facing a decision, are linked to a cognitive style that tends to this aversion to loss.

Bibliographic references:

  • Kahneman, D., Knetsch, J. and Thaler R. (1991). The endowment effect, loss aversion, and status quo bias: anomalies. J Econ Perspect: 5: 193-206.

  • Kahneman, D. and Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 47: 263-91.

  • Molins, F. and Serrano, B.A. (2019). Neural bases of loss aversion in economic contexts: systematic review according to PRISMA guidelines. REV NEUROL, 68:47-58