Tuesday, January 31, 2012
Taking the shot: How to overcome our innate fear of losing
Fear of losing
Loss aversion is the behavioural principle that I have mentioned most often in my blog articles because I believe it is one of the keys to unlocking an understanding human behaviour. Our tendency to avoid loss rather than seek gain is one of the strongest, most primal responses that influences the actions we take because frankly, it seems safer. It's a "Better the Devil You Know" approach. Chasing the win requires stretching into the unknown and that can be uncomfortable whereas structuring your business to hold on to what you have - circling the wagons - is much more familiar. From small businesses to boardrooms at the big end of town, introducing price rises rather than launching new products, prioritising higher margin but end of life products rather than lower margin growth products, slavishly applying traditional marketing techniques in a new digital world, and staying with incumbent suppliers who disappoint rather than trying someone new are examples where loss aversion may have reared its head.
Overcoming loss aversion
So how can you get over this mental barrier?
Last year I read Timothy Ferris' book "The 4-Hour Work Week". Ferris' aspirational lifestyle aside, what I found really useful about the book were the processes to overcome fear of taking the leap to a new style of career. In other words, tips for overcoming loss aversion.
Whilst written from a career change perspective, this process can be used to overcome business fear too.
1. Define your worst nightmare
2. What steps could you take to repair the damage?
3. What are the benefits of more probable scenarios?
4. If it happened today, what would you do it get things under financial control?
5. What are you putting off out of fear
6. What is postponing action costing you financially, emotionally and physically?
7. What are you waiting for?
Another technique I have used, based on Ian Stephens' 7 Step Pathway to Mastery, is to write down;
1. what you want your future state to look like
2. 25 Benefits to you/your business of achieving this future state
3. what this means for your priorities. Then;
4. 25 disadvantages of of not moving to the future state, and
5. What these disadvantages will mean in 5-10 years (which amplifies the downside of inaction).
6. What the benefits will mean in 5-10 years and
7. The steps to which you will commit to achieve your future state.
At their core, both Tim and Ian's methods amplify the negative impacts of loss aversion (by doing nothing or doing the same) to such an extent that it is much less palatable than the benefits of taking action. And that is the key to conquering loss aversion. We are all familiar with listing the pros and cons of taking a course of action, but loss aversion teaches us we need to get more familiar with the cons of inaction if we want to be someone who steps up and takes the shot. Happy conquering.
Image from blogs.abc.net.au