Chapter 2

Who Wants to Be a Loser?

Uncover how our intuition and natural tendency to avoid losses counterintuitively results in much greater losses for ourselves and our businesses.

Recognize the systemic and predictable dangerous judgment errors that result from our gut reaction to defend ourselves from losses.

Protect yourself from the often-disastrous consequences of these judgment errors through gaining specific techniques to solve loss aversion.

Patricia certainly didn't want to be a loser. She's a top-notch CPA and worked long hours in her big accounting firm. She received frequent praise from her boss for the quality of her work, including excellent performance reviews. Her coworkers came to her when they had questions and needed insights on challenging issues, loving her willingness to help out.

Yet she kept getting passed over for promotion, year after year, despite making requests and networking with higher-ups. She'd already learned everything there was to learn in her current position and was just going through the motions. She thought about looking for a new job for a couple of years and knew in her heart that a serious job search was long overdue. Unfortunately, she hadn't been able to do it and she didn't know why.

Patricia's dilemma reflects a typical problematic gut reaction that undermines the success of many professionals, including business leaders. However, before talking about this dilemma, let's talk about luck.

Do You Feel Lucky?

It's your lucky day! You meet a kind stranger who offers you a great deal, something for nothing. No tricks! You're getting a free lunch. She offers you a choice: A) She'll give you $45; B) She'll give you a chance to flip a quarter from your pocket. If it's heads, then she'll give you $100. If it's tails, you get nothing.

Which do you choose? Do you want $45 in cold, hard cash, or are you willing to take a chance with the coin flip? Decide before reading further. Keep your choice firmly in your mind.

The next day you have some bad luck. You are stopped by a police officer for going just over the speed limit. He's bored and wants to entertain himself, so he offers you a choice: A) He'll fine you $45; B) He'll give you a chance to flip a quarter from your wallet. If it's heads, he'll fine you $100. If it's tails, he'll let it slide.

Now which of these do you want? Again, make a choice, and keep it firmly in mind. Do you want to try to avoid any losses with the coin flip or hand over your $45?

When I present this scenario in my speeches to business audiences, about 80 percent say they'll take the $45 from the kind stranger, and about 75 percent want to flip a coin to see if the cop will let it slide. So if you made either or both of these choices, you're in good company.

Upon first learning about this scenario from the professor who mentored me in graduate school, I made the same choices. Indeed, the $45 offered by the kind stranger is a sure thing, and it felt good to have the money in my pocket. Wouldn't I feel foolish if I let this certain thing go for just a chance at getting the $100?

By the same token, in the second scenario, I didn't want to lose the money. If I gave the cop $45, that would be a sure loss. If I took the chance at a coin flip, I might not have to pay anything.

So in both cases—the gift and the fine—my gut reaction was to avoid losing out. After all, who wants to be a loser?

My mentor told me that studies on this topic showed that most people made the same choice that I did. Then, he told me to take out a quarter and flip it.

I got heads, so I would have gotten $100, losing out on my choice. Then, he asked me what would happen if I flipped it 10 times, 100 times, 1,000 times, 10,000 times, then 100,000 times. At 100,000, he told me, on average I would get $5 million if I chose the coin flip for $100 each time, versus $4.5 million if I chose $45. The difference: a cool $500,000.

Thus, choosing $45 as my gift and the coin flip as my fine resulted in losing out in both cases. The right choice—the one most likely to not make me a loser—is to choose the coin flip as the gift and the $45 as the fine. Otherwise, over multiple coin flips, I'm very likely to lose.

I was surprised, confused, and hard-pressed to believe him, or at least my autopilot system felt that way. He convinced me by running the numbers. Let's go with the gift first. You're flipping a coin from your own pocket, so you know it's fair. The chance of getting heads is 50 percent, so in half of all cases you'll win $100, and in the rest you won't win anything. That's equivalent to $50 on average, versus $45.

The fine has the same math. By choosing the coin flip, I was giving up $50 on average versus $45.

But wait, Prof. You presented this as a one-time deal, not a repeating opportunity. Maybe if you told me it was a repeating scenario, I'd have thought about it differently.

That didn't fly. He told me that research shows our gut treats each individual scenario we see as a one-off. In reality, we face a multitude of such choices daily in our professional lives. Our intuition is to treat each one as a separate situation. Yet, they form part of a broader repeating pattern where our intuition tends to steer us toward losing money.

Then, he told me something I would never forget: my life—anyone's life—is made of 100,000 coin flips. If we are trying to seize an opportunity, we can either win $5 million or $4.5 million. If we are trying to avoid a threat, we can lose either $4.5 million or $5 million. To avoid having our gut lead us into gaining $500,000 from opportunities and not losing $500,000 from threats throughout the course of our lives—a nice $1 million in total profit—we need to decide right now to see all risks as broad repeating patterns and treat them accordingly.

His words changed my life, and so many things fell into place. I began to see patterns of risk and reward in all repeating situations in my life, both professional and personal. It proved a monumental and very lucrative change in my feeling and thinking patterns.

How can you apply this paradigm shift to yourself? Think about your business. Every day, you face a series of situations for which you need to decide whether to take the course that feels most comfortable by avoiding losses, or the course that feels less comfortable and leads to more gains over time. We're not talking about huge bet-the-company risks, which require a different approach, but the kind of small decisions that add up to large sums over time. If you just go with your gut instead of doing the calculations and going with the data, you are likely to lose much more money by not taking the course that feels most risky.

Now, the difference between $45 and $50 might not seem like much. However, repeated multiple times a day, it means a lot. The difference between these two numbers is 10 percent. If every time you face a business decision—whether addressing threats (fines) or seizing opportunities (gifts)—you take the choice that feels most comfortable to your gut by avoiding losses, the annual cost is 10 percent of your revenue.

Let's say you have a personal income of $100,000 per year. After paying expenses, you save $20,000 a year. That's your profit. If you lose 10 percent of your revenue, or $10,000, you only have $10,000 profit a year. In other words, 50 percent of your profit is wiped out by trying to avoid losses.

Now, reflect on your earlier choices. Did you choose the $45 gift and the coin flip as the fine? In that case, you are vulnerable to both aspects of this problematic gut reaction. Maybe you selected the coin flip as the gift, and the same for the fine? In that case, you are probably more vulnerable to loss aversion when you address threats rather than when you face unexpected opportunities, and will be most vulnerable when unexpected problems arise. How about if you chose $45 for both the fine and the gift? Then you're most likely to be hurt by loss aversion when things are going well and will fail to seize unexpected opportunities, going for the option that feels safest rather than the one that will most help your bottom line.

Perhaps you chose the coin flip as the gift and the $45 as the fine, and are in the minority who focus on making the most profitable decisions. Well, kudos to you!

How about other employees in your organization? Let's say your company has an annual revenue of $50 million, and a healthy profit of $7.5 million. Regardless of the choice you're making, if other employees in your organization are going with their gut to avoid losses, and the company loses 10 percent of its revenue or $5 million per year, then two-thirds of your profit will be wiped out, leaving only $2.5 million.

Incidentally, while 80 percent of all business audiences in my speeches prefer $45 as the gift and 75 percent the coin flip as the fine, the numbers are different when I present to top executives: it's closer to 50 percent for both. Executives are more used to checking their intuitions against profit and loss statements and making decisions that are most profitable. Still, the fact that 50 percent chose to lose 10 percent of their revenue in each case highlights the grave danger of our tendency to avoid losses.

Loss Aversion

The cognitive bias behind our faulty decision-making is called loss aversion, our tendency to prefer avoiding losses over getting higher gains. While I used 10 percent as my example, the original research on loss aversion by Amos Tversky and Daniel Kahneman suggests that for many people, the tendency to avoid losses may be twice as strong as their desire for gains.¹

What explains loss aversion? Let's consider the evolutionary context of the savanna environment in comparison to today's world.

Back then, we had no way of saving resources for the future. If you killed an animal too large for your tribe to eat before it rotted, you couldn't use the remaining meat. If you made too many tools, you couldn't carry them with you when your tribe migrated in search of better hunting grounds. By contrast, if you took risks that caused you to lose the few resources you had, you might easily die in the dangerous savanna environment.

It's no wonder that our ancestors developed an intuitive aversion to losing resources, compared to gaining them. Our gut reactions retain this reluctance in our modern environment, in spite of the much lower danger associated with losing resources now. It's unlikely we will die if we take reasonable risks. Moreover, the banking system and property law enable us to accumulate resources, and the stability of modern life enables us to be relatively secure in this resource accumulation.

Going against your gut intuitions on loss aversion will be worth hundreds of thousands to you personally and many millions to your business throughout the course of your career. What would you pay to get 10 percent higher revenue that adds to your profit margins without any associated costs? It might take much less than you think: simply a slight adjustment in your decision-making strategy.

EXERCISE

Not doing the exercises in this chapter will inhibit your ability to apply these strategies in your professional life. Take the time to reflect on the following questions for a few minutes and write down your answers in your professional journal:

Where have you fallen for loss aversion in your professional activities and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

Pragmatic Dangers of Loss Aversion

How does loss aversion play out in real life? Let's go back to Patricia, the CPA who had difficulty deciding to leave her job. She came to me for coaching on making this decision after being one of the 80 percent at my speeches who indicated she would rather keep the $45 than take the mathematically most profitable option of the coin flip.

She's an accountant and the math proved very convincing for her. What she found more difficult was deciding how to deal with the contradictory impulses she experienced between her gut and her head. After all, having your intentional system know about the problem of loss aversion doesn't mean that it's magically fixed, because the autopilot system still makes avoiding losses the most comfortable option.

In Patricia's case, loss aversion led her to overvalue her current situation and feel reluctant to change it in the face of the uncertainty of a job search, even if she knew intellectually that she was highly qualified and would very likely find a much better job. This excessive orientation toward stability over change is a cognitive bias related to loss aversion called status quo bias.²

Any leader who tried to launch a change effort is familiar with stubborn resistance from staff who fear any change, even when it is desperately needed. Status quo bias and loss aversion combine to undercut many change efforts. Leading and managing change requires a complex approach that draws on the strategies in the second half of this book.

Status quo bias often comes along with a tendency to try to find excessive information before making decisions. This mental failure mode bears the name information bias, informally known as “analysis paralysis.”³ You'll often see someone who opposes healthy and needed change demand more and more information, even if that data has no real relevance on the decision at hand.

I've seen the combination of information bias and status quo bias have an especially damaging impact on companies whose growth curve is plateauing. For example, a technology company experienced rapid growth with a couple of innovative products. However, its growth started to decrease following the typical S-curve growth model.

This model accurately predicts the large majority of growth scenarios for successful products, or other successful endeavors. First comes a slow and effortful start-up stage, followed by rapid growth stage. After a while comes a slowdown in growth, often following market saturation or competitive pressure or other factors, where the product reaches maturity. If nothing changes, an inevitable revenue decline follows, due to a combination of external market changes and internal stagnation.

It's common for business leaders to express surprise and confusion over the plateau and decline, despite the typical nature of this growth cycle. The time to change things up and launch new offerings comes during the rapid growth stage, not during the plateau stage. Leaders aware of the S-curve invest into R&D and innovation most when things are going well with established products, to have new products ready to go that would maintain rapid growth.

Unfortunately, the technology company failed to do so. Instead, its leadership focused on analyzing the market to find the cause of the problem when growth began to decrease. There were a couple of executives in the company who proposed launching new products, but most of the leadership was cautious. They kept asking for guarantees and assurances that the products would work out, demanding more information even when additional information wasn't relevant. They instead preferred to double down on the successfully performing products, tinkering with them in hopes of reviving growth.

EXERCISE

Take the time to reflect on the following questions for a few minutes and write down your answers in your professional journal:

Where have you fallen for status quo bias in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

Where have you fallen for information bias in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

You Sank My Battleship!

Another typical business example of loss aversion causes many problems for small business owners. How often have you walked into a small business and felt surprised at the dinky furnishings? Many small business owners try to avoid losses by getting cheap décor, yet this strategy ends up costing them more in the long run.

First, low-quality furniture wears out more quickly and has to be replaced more often. Second, and perhaps more importantly, I'm sure I'm not the only one who chose not to work with a small business that conveyed a penny-pinching appearance. After all, if they penny-pinch on their daily surroundings, how do they treat clients?

Unfortunately, the owners of small businesses that are growing into midsize businesses—a group that form a substantial portion of my coaching clients—often feel reluctant to dispose of such furnishings. They suffer from a cognitive bias related to loss aversion called sunk costs, which means once we invest significant resources into initiatives and relationships, we tend to hold on to them far longer than we should, even when they no longer provide an acceptable return on investment.⁴ It takes a lot of effort to convince them that the money they invested in the décor is gone and they need to focus on projecting a classy appearance to their future customers.

Our propensity to pay excessive amounts to avoid a loss is exemplified by a problematic tendency that I've seen in both small and large businesses: extended warranties. Studies find that such warranties are usually not worth it and are a major profit leader for equipment manufacturers. As long as you have sufficient money to replace the piece of equipment, avoid getting extended warranties.

In general, insurance is structured so that the insurer wins and you lose. Thus, the only insurance that makes sense is coverage for significant problems that you can't easily address through your existing cash flow. Fire insurance makes a great deal of sense; smartphone insurance does not. We tend to place excessive value on products we own, a cognitive bias called the endowment effect, which makes it easy for those who understand this quirk of our psychology to take advantage of us.⁵

EXERCISE

Take the time to reflect on the following questions for a few minutes and write down your answers in your professional journal:

Where have you fallen for sunk costs in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

Where have you fallen for endowment effect in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

My Baby Is the Most Beautiful Baby

Finally, let's consider a consulting client of mine, a B2B software company that needed my help to improve employee engagement and motivation in selling the company's services. At the tail end of my engagement, the company experienced a serious challenge when a larger company entered the market with a product that competed against one of my client's three flagship products. My client had a relatively small full-time sales force, which made it hard to protect client relationships.

The sales force spread itself thin trying to convince all existing customer accounts to stay with them and avoid switching to the competitor's product. After considering the previous scenario in which the cop levied the fine, this behavior was a mistake. They didn't want to lose any accounts, but of course they would inevitably lose some; the competitor wasn't stupid and was going to gain at least some market share. They suffered from a form of loss aversion known as the IKEA effect, where we tend to value too much what we ourselves create in comparison to how much it's actually worth on the open market. In this case, they overvalued the customer relationships they built. The opposite bias happens as well, called not invented here, where organizations, teams, and individuals place a too-low value on ideas, products, and techniques found elsewhere.⁶

In the previous example, it would have been much wiser for the sales force to triage aggressively and focus on cultivating the few most important accounts from which the company made most of its money. About twelve accounts out of forty-nine made up more than 70 percent of the company's money, a reminder of the general validity of the Pareto principle (most of the value comes from relatively few sources).

I encouraged the company's VP of sales to change his strategy. I asked him to agree to the loss of many smaller and less important accounts (giving up the $45) in exchange for protecting himself from a much bigger loss (a coin flip for $100, although the company's chances of keeping all the accounts were much lower than a coin flip). We worked together to create a plan where the sales team focused on cultivating the twelve accounts through relationship building and improved customer service, while highlighting the risks of switching to the unproven product offered by the competitor. In the end, the B2B firm managed to keep all twelve large accounts, and more than half of the smaller ones that preferred to stick with the proven product despite the cheaper introductory price offered by the competitor, especially because the bigger accounts did so.

EXERCISE

Take the time to reflect on the following questions for a few minutes and write down your answers in your professional journal:

Where have you fallen for IKEA effect in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

Where have you fallen for not invented here in your professional activities, and how has doing so harmed you? Where have you seen other people in your organization and professional network fall for this bias in their professional activities, and how has doing so harmed them?

Solving Loss Aversion & Co.

Mindfulness meditation is an excellent practice that will build up your debiasing ability overall, and applies to all judgment errors rather than any one in particular. Thus, I will only discuss it as a solution in this chapter so I don't have to repeat it every time, but keep in mind that it applies to all of the cognitive biases described throughout the book. Note that I focus only on research-backed meditation practices; other approaches exist, and they may be effective, but they haven't been studied enough by academic research for me to be comfortable putting them forward.⁷

A daily sitting practice of just ten minutes a day will substantially improve your ability to solve all sorts of cognitive biases. Due to the general applicability of mindfulness meditation for debiasing, along with other mental and physical well-being benefits, I cannot stress enough the importance of taking up a daily meditation practice.

For those not familiar with meditation, a breathing practice offers a good place to start. Free up thirty minutes for your first meditation session. For future sessions, ten to twenty minutes should be sufficient. Start by sitting in a comfortable position. Then, take in a long breath, counting to five slowly as you breathe in. Hold in your breath for the same five-count length, then breathe out while counting to five. Then, wait for another count of five before breathing in again.

Repeat this cycle a couple more times until you grow comfortable with it. Then, at the start of the next cycle when doing the five-count breathing in, focus on the sensations in your nostrils when the air moves past them. Focus fully on that sensation while still maintaining the pace of slow breathing in. Once you breathe in, keep focusing on your nostrils for the five-count while holding your breath, and notice how they feel different with no air rushing past them. Then, focus once again on air rushing past your nostrils when you breathe out to the count of five, and then once again on the nostrils with no air moving past them while you wait for a five-count before breathing in. Keep doing the five-count breath cycle combined with focusing on your nostrils for twenty minutes. Notice whenever your attention wanders away from your nostrils, and bring it back.

That's not too hard, right? To build up this practice, first you need to make a personal commitment to free up ten to twenty minutes a day. The twenty minutes will give you flexibility for those inevitable days when some unexpected emergency occurs. Those are the days when we feel least capable of meditating, yet counterintuitively, these are the days when meditation can most help us avoid mistakes and make better decisions.

Then, learn about different approaches to meditation and experiment with the three major ones: focusing on breathing, focusing on letting go of thoughts (zazen), and focusing on body awareness. You can search for this information online or read books about it.

After you choose an approach that works best for you, decide on a specific time and place in which you'll engage in your sitting practice. I do my meditation in the morning, shortly after I start my work tasks, as my first break of the day. What reminders will you use to help you remember to pursue this practice? Write down your commitment in a journal or email to yourself, and share with others in your life about your new mental exercise routine.

Be forgiving of yourself if you slip up, and simply get back on the wagon. New habits are notoriously difficult to build. Remember, this mindfulness practice is one of the best things you can do to improve your overall ability to fight dangerous judgment errors in all of your professional activities.

Let's move on to specific techniques for debiasing the cognitive biases described in this chapter, starting with delaying decision-making. This technique offers a critical barrier to avoid the temptation of making a choice that causes us to avoid any and all losses. When making any choice that involves a sure but smaller loss or gain, versus a more risky but larger loss or gain, take a minute to consider your options.

For instance, when shopping for computer equipment, cars, washers, dryers, or anything else for which the sales staff offer you an extended warranty, take a minute to think. Will it really pay off to buy it? Most likely not, according to research by Consumer Reports and others.

When trying to retain your customers under attack from an aggressive competitor, don't try to protect all of your accounts. Instead, triage to make sure you're investing your sales resources in the most effective manner. What about when you decide to go to an hour-long networking event? You might meet some valuable contacts (or not), but you will definitely lose the resources invested. Consider the mix of potential contacts at the event and how many you'll meet in an hour, and decide whether the time and money you invest are worth the possible contacts you'll gain.

Now, you might think that while the answer is obvious for extended warranties (my apologies for any readers who sell extended warranties, but you know it's one of your biggest profit leaders), the answers are less clear regarding whether to go to the networking event or which accounts to protect from competitors (although you shouldn't try to protect them all). That's fair: it's much easier to address loss aversion and related thinking errors with solid numbers such as $45 versus 50 percent of $100 than in situations with fuzzy and uncertain outcomes.

For these less certain outcomes, the key tool is the technique of probabilistic thinking. With my B2B client facing an attack on its market share from the aggressive competitor, we turned to this technique to decide which accounts to protect. They already had solid numbers on the costs of recruiting new customers versus retaining current ones (it was about six times cheaper to retain current customers). Then, we estimated how the numbers would change as a result of this market change, while supplementing our guesstimates with hard data as it became available. We calculated that the company could likely protect the twelve most important accounts out of forty-nine by dedicating about 60 percent of its sales resources to these large accounts, but we assigned 85 percent to provide a significant margin of safety.

In the case of the technology company, another aspect of probabilistic thinking really helped—launching experiments and making bets—along with the strategy of predicting the future. I know about this story because one of the executives who wanted the company to push toward innovative products was a coaching client of mine. He asked for my help in convincing the company to get past information bias and status quo bias.

I suggested that he propose a market research experiment: Would the company's existing customers be more interested in what most of the senior management wanted—a slightly improved version of their current products—or some of the suggested ideas bouncing around in the R&D department? A part of the experiment would involve the leadership team predicting what would be of most interest to customers, and making a bet with the company's financial resources on what customers most wanted.

At first, he ran into resistance. First, revealing the R&D ideas seemed foolish to some other senior executives, as competitors might find out and develop these ideas themselves. He pointed out that these offerings wouldn't get developed anyway if the company didn't invest in them. After all, most of the senior leadership wanted to focus on tinkering with existing products. He also proposed to limit the scope of this market research to the trusted contacts within their clients.

Second, the more conservative senior leaders did not want to make a prediction and bet prior to the results of the market research experiment. Yet getting this commitment was fundamentally important to overcoming information bias. They'd otherwise find more ways to obstruct new products, especially because some of them had fiefdoms to protect that were tied to existing products. Eventually, after a private conversation with the CEO, the senior leadership agreed.

You won't be surprised to learn that the market research showed that customers were quite a bit more interested in the new ideas than a slightly improved old product. The company did make an investment into a couple of the new products. Although two failed to make much of an impact, one of the products went on to have even more success than the products that originally launched the growth of the company.

For the networking event and similar scenarios, combine probabilistic thinking with the technique of considering your past experiences. At comparable events in the past, how many long-term connections did you make, and how valuable did these connections prove to be? A good way to assess how many connections you typically make is to use the strategy of betting. Would you bet $100 that you would make two connections at this event? How about three connections? When we force ourselves to stake money on the outcome, our thoughts often become much clearer.

If you have difficulty estimating the value of connections, an easy way to do so is to consider how much money you would accept to give up a particular connection. Thus, if you make an average of two connections at an event, and you would give up each of these connections for $80, then the expected probable value of an average event is $160. Reflect on how much time, energy, and money you would have to expend to attend this event, and ask yourself whether it's more or less than $160.

Some of my coaching clients experience challenges when they think about relationships in numerical and especially financial terms. There's something about our tribal background that causes us to treat relationships as distinct and separate from other forms of resources, such as money, time, and reputation. I find such difficulties especially prevalent with clients from East Asia and Latin America, where there's a higher emphasis on group belonging.

However, to avoid judgment errors and avoid relying on our (thoroughly unreliable) gut reactions regarding relationships, we need to tap our intentional system instead of our autopilot system. Using numbers is the easiest and simplest way to do so. Work on de-anchoring yourself if you experience such difficulties. Recognize that your connections are a resource just like everything else.

It's especially tough to recognize the dangers of loss aversion and the related status quo bias when you face a decision to make a major change with uncertain consequences. As a result, evaluating long-term consequences and repeating scenarios is a critical tool for solving loss aversion. Patricia's career choice is a perfect example.

When I asked her why she was so reluctant to look for a new position, she revealed that money was not the only or even biggest issue facing her. She felt comfortable in her current position; she had a clear and steady routine doing the same things every day.

This is a personality trait common to many CPAs. Changing to a new company involves learning a whole new set of systems, processes, and practices, and becoming socialized into a new set of unwritten social norms and rules. Patricia did not look forward to that. Moreover, she genuinely liked her colleagues; she had a positive and supportive social network in her current position. As an introvert, Patricia was worried about the substantial challenges she would experience trying to fit into a new workplace community.

It was no wonder she felt so reluctant to launch a job search. I asked her to imagine her long-term future and repeating scenarios, another very useful debiasing strategy for addressing loss aversion. She had been thinking about a new job for the last couple of years. How would she feel if another couple of years elapsed with no promotion and no job search? Patricia had an immediate and visceral reaction of anger and frustration, and surprised herself with the strength of her emotions. She definitely didn't want to be in this dead-end job for another two years!

Then I asked: What is the likelihood that she would be promoted at her current job in the next two years? “Next to none,” she answered. To that I replied, “If that's the case, why not simply launch the job search now, and spare yourself the trouble of waiting a couple more years until your anger and frustration overcome your reluctance to get used to new routines and figure out a way to fit into a new work community?”

With that framing, Patricia's internal resistance to finding a new job melted away. She soon launched a job search. In less than two months, she found a more desirable position.

The last important strategy for addressing this category of cognitive biases involves setting a policy to guide your future self and organization. Regarding the coin toss, to prevent your intuition from leading you astray, adopt a policy of letting the data lead you, instead of relying on your intuitions. For each decision you face, envision it as a repeating pattern instead of a one-time decision: run the numbers, account for the role of uncertainty, and take the course most likely to lead to the biggest profit. Treating each choice as part of a broader pattern might feel counterintuitive, uncomfortable, and unsafe. Yet the course that feels safe in terms of avoiding losses is actually much more dangerous for your bottom line.

Say you are reluctant to buy more expensive options that will be better for you in the long run. For example, you a small business owner that springs for nice furniture and decorations rather than getting them from a thrift shop, or you pay a website designer to make your website rather than doing it yourself. If so, you can make a personal commitment to go for a more expensive option as your default strategy, thus you have to prove to yourself that it's worthwhile to go for a cheaper option. This approach might feel uncomfortable, but remember that the literature on de-anchoring—and my extensive consulting and coaching experience—suggests that we all tend to undercorrect for our problematic predispositions. It's much better to try to overshoot than to go for what feels comfortable. The same approach applies to setting organizational priorities.

Loss aversion–related cognitive biases are some of the most dangerous ones around for protecting the bottom line of your business; the strategies in this chapter help protect you against them. The next chapter gets into attribution judgment errors, which pose massive threats to the health of your professional relationships.

EXERCISE

Don't lose the benefits of driving these strategies home and figuring out how and where you can best apply them! To ensure you get this value, take a few minutes to reflect on the following questions, and write down your answers in your professional journal:

How will you use delaying decision-making to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use probabilistic thinking to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use making predictions about the future to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use considering past experiences to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use considering the long-term future and repeating scenarios to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

How will you use setting a policy for your future self and organization to fight the biases described in this chapter? How will you help others in your organization and professional network use this strategy? What challenges do you anticipate in implementing this strategy and helping others do so, and what steps will you take to overcome these challenges?

CHAPTER SUMMARY

Our brain is wired to avoid losses even if we can make larger gains on the whole, a dangerous judgment error called loss aversion.

Although loss aversion helped our ancestors survive and reproduce in the savanna environment, it devastates our bottom lines in today's business environment.

A particularly dangerous cognitive bias related to loss aversion is status quo bias, our reluctance to undertake necessary changes to adapt to the rapidly shifting business context of tomorrow.

Another threat that relates to loss aversion is the judgment error known as sunken costs, when we fail to cut our losses into projects and relationships that no longer provide an adequate return on investment. To address dangerous judgment errors related to loss aversion, you can use debiasing techniques that include:

delaying decision-making

probabilistic thinking

making predictions about the future

considering past experiences

considering the long-term future and repeating scenarios

setting a policy for your future self and organization