Loss aversion can help us understand a lot about our colleagues, our friends, and ourselves. It helps us understand why a driver with no history of car accidents pays Avis extra for collision insurance. It helps us understand why someone holds on to a downward-trending stock so that the paper loss doesn’t turn into an actual loss.
And it can also explain why backers are reluctant to invest in anything that doesn’t feel safe. Even venture capitalists who look for risky investments turn down the overwhelming majority of new ideas they hear. Instagram, Facebook, and Amazon were rejected by multiple investors.
If the fear of betting on the wrong idea is twice as powerful as the pleasure of betting on the right idea, then we can’t neutralize the fear of losing with the pleasure of winning. We can only neutralize the fear of losing with…the fear of losing.
