How Loss Aversion Impacts Entrepreneurs

When developing products, I constantly find myself revisiting psychological biases to attempt to understand my blind spots when reasoning. Although there are many psychological biases we make as entrepreneurs, there are 25 I continuously find myself revisiting. I’ll be focusing on loss aversion for this article and how it impacts us as entrepreneurs.

According to The Decision Lab loss aversion “is a cognitive bias that describes why, for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining.” I immediately think about why it can be so difficult for founders to pivot or why founders cling to dysfunctional companies or ideas and believe in part that loss aversion bias is a reason (combined with a few other biases).

Wholeheartedly committing to providing a solution to a problem in a specific way can be destructive because with this bias founders can disillusion themselves to their idea being the “only way” or the “best way”. This can come from a place of being afraid to change your idea or ‘pivot’. As founders commit more money and time, it can become increasingly difficult to change without a sense of detachment from the outcome itself.

So what can you do?

This is another one of my random thoughts so I definitely do not have any definitive answers but I do think it’s important to make self-reflection a best practice. From my observations and conversations at Hackathons, I find it important for makers/ founders to reflect on their decision-making process. We all have biases, that isn’t inherently the problem. It’s the lack of awareness about the gaps in our decision-making and how we disillusion ourselves based on experiences, culture, education, fears, and much more.

What do you think? Have you been afraid to change a product you’ve been working on because of loss aversion bias?