Incorporating loss aversion (without being negative)

It will probably not surprise you to learn that people hate to lose things (especially if you have ever had small children or watched them play).

Does this sound familiar? Five-year-old Dylan is playing contentedly in the playroom surrounded by far too many toys for one child to play with at any given time. Eventually, Suzie wanders up, and chooses a toy off the periphery, far outside Dylan’s immediate reach. But for some reason, he screams, “Noooo! I was just about to play with that!” Somehow, this random toy – which could be anything from an empty box to a Transformer to a Barbie – has now become his absolute favorite and he cannot give it up. Though…none of the other toys are great candidates to hand over to Suzie either – he does not want to lose the opportunity to play with ANY of them.

Whether you have kids or not, I’m sure you know what I am talking about.

We as parents know and talk about how ridiculous it is. And yet…our subconscious brain does this exact same thing all day, every day. We never really unlearn this behavior, we simply know how to control it outwardly.

Your subconscious brain is basically a two-year-old throwing a tantrum and freaking out when someone else tries to play with your wonder woman doll…even if you weren’t using it at that exact moment.

Sad, but true.


So what have we done in our society? Gotten it completely backwards unfortunately. We have looked at this behavior and said, “People like things, so we should give them more things!”

We have created a gain-riddled society built on punch cards and reward programs intended to create loyalty, but that (more often than not) are gathering dust between the driver’s seat and the center console in the car.

Gains are not the key to driving behavior – losses are (but they don’t have to be negative).

Studies have shown it takes DOUBLE the joy felt by a gain to equal the pain felt by a loss. So, it would take finding $40 on the street to equal the distress you felt if you lost $20 from your own wallet.


So, how can you use this in your credit union, without being negative? Consider those points promotions you probably run all the time. Have you ever sent something out that has a message like, “Swipe your card 20 times this month and we will give you $50?”

The member who receives that will probably think, “$50 is a lot of money! I will definitely do that!” and set the flyer in a “safe place” to make sure they remember. When they clean out that “safe place” drawer in three months, they realize they forgot…but vow to follow the steps next time they get a promotion like that.

The problem is that is focused on a potential gain (and, in far too many cases, one were they will not see their bonus points for 90 or 120 days after the promotion ends). This means it is a lot less motivating than a potential loss.

So, what I recommend is flipping it around.

Instead say, “We have put $50 in your account, if you use your card 20 times this month, you get to keep it.” (See image)

And note, of course, those funds are in the Current Balance (not the Available) and there are things to review with your compliance department to make sure you are complying with the proper regulations.

With this approach, the member can see the money – so their brain will take perceived ownership over it. And that is when loss aversion takes hold. They have started planning for all the things they will use that $50 for – maybe a new pair of shoes or some other treat.

Whatever their plan for the money, I can pretty much guarantee that this approach would motivate more people to swipe than the theoretical-$50-you-might-get-someday-if-you-swipe approach.

If you want to learn more about the concept of Loss Aversion and how to apply it in your credit union, check out episode 9 of The Brainy Business podcast (it also comes with a free worksheet to help you find ways to apply the concept).

Melina Palmer

Melina Palmer

Why do people say one thing and do another? What really drives behavior? How does the brain actually work – and how can we best communicate with it? What does that ... Web: Details