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5 Ways Loss Aversion Is Hurting Your Business and What to Do About It by @Pamela_Lund

by Pamela Lund | Featured Contributor Building a successful business is anything but easy. You have to be willing and able to do things that can be not only uncomfortable, but completely paralyzing at times. Taking risks, walking away from bad money, and cutting your losses when things go south are just a few of the things you’ll have to be prepared to do. Any basic business book can tell you all that, but what those books don’t tell you is how hard it is to actually do those things and why most people don’t, even when the payoff is worth it. Humans are a fairly predictable lot. We usually conform to the status quo so we’re liked by our peers, even when we really want to be different. We work long, tiring hours to buy big houses that we can fill with things we never use but keep “…just in case”. We stay in relationships that don’t make us happy because it’s easier than the alternative. All of these things are prime examples of irrational behavior (AKA doing the opposite of what makes sense), especially if you believe that it’s rational to do what makes you happy. So, what makes us so predictably irrational? The fear of loss. If you don’t conform to the status quo you may lose your friends. If you don’t buy something you lose out on the feeling you get from owning it. If you leave a relationship you lose that bond and may go a while before finding another. You may be thinking that these particular losses don’t seem compelling enough to be afraid of them, but research has shown that our fear of loss is greater than our desire for gain – and our actions almost always reflect that. We would rather hold on to what we have, what is certain, than to take a risk that may have a great pay off if there’s even the smallest chance of loss. This fear of loss leads us to prefer our safe, stable, current situation over change, even when we’re unhappy and something different…

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