So far, we talked about loss aversion acting upon decisions on financial and health matters. It all seems pretty human. But, surprisingly, capuchin monkeys display the same cognitive bias for economic decisions, as scientists at the Comparative Cognition Laboratory at Yale University found out.

You can learn how the scientists created a non-human financial market in “A Monkey Economy as Irrational as Ours,” Laurie Santos’ TED Talk. In this market, Santos and her team introduced tokens which the monkeys could exchange for food. Soon enough the monkeys understood they could get food if they handed one of the tokens.

With time, the scientists started to change the offers, which changed the value of each token. Instead of getting one grape for one token, monkeys could get two, or three grapes. With the change in offers the monkeys had to make decisions between safe and risky bets.

The scientists framed these bets differently, in terms of loss and gain.

In one of the scenarios, the monkeys could choose between surely receiving one grape for one token, plus a bonus grape, or betting to receive three grapes, two as bonus, with the risk of getting just one grape (no bonus). In this gain perspective, monkeys always opted for the safe bet, the guy offering one grape plus one bonus every time.

In the loss scenario, the monkeys started out receiving three grapes for one token. But they had to make decisions on how many grapes they would lose. One of the guys always offered two grapes. This was a safe loss. The other guy sometimes offered three grapes, or just one grape. This was a risky loss. Rationally, the monkeys should choose the safe guy, with the safe loss, but acting on loss aversion, and mirroring human decision-making, they always made the risky decision of trying to keep more grapes, losing to risk one more grape in the transaction.

With these two scenarios, scientists could show monkeys, as humans alike, avoid the certainty of loss and shoot for possible, uncertain wins. Monkeys treat losses as more important than gains, just as we feel losses more intensely than we feel the gains.

The gain/loss scenarios also show the decision-making was based on the referent. The monkeys were considering taking the risky action when comparing the choice to the immediate option. They could not evaluate the general picture of receiving two grapes for one token, which was a gain already, when compared to the initial stage of one token buying one grape.

We need an enormous effort to understand reality in absolute terms, so, when making decisions, we use a baseline as reference. In evaluating a gain or loss scenario, we always chose a stand point of reference to base our assessment. This reference might trick us, as it happened with the monkeys and their decisions on trying to get more grapes.

When a close referent makes us lose sight of larger, more distant references, myopic loss aversion comes into play. Investors, in special, fall prey to this bias, as they tend to view their investments under short-term lenses. A larger gain accumulated within a year, for instance, gets dismissed by a recent minor loss over the last month.

As core as these biases are, they must have been shaping our decisions for a long time. Indeed, they have, and marketers could see them before scientists named them. As Robert Collier signals to us in The Robert Collier Letter Book, first published in 1931:

There are only two reasons why your reader will do as you tell him to in your letter. The first is that you have made him want something so badly that of his own volition he reaches out for your order card to get it. The other is that you have aroused in him the fear that he will lose something worthwhile if he does not do as you say.

Loss Aversion in Marketing: Framing Your Offers

When you want to inspire fear, be definite! Be specific!  Robert Collier

Inspiring the fear of losing: a powerful technique since the 1930s.

The not-so-hidden secret to employ this technique? Just frame your offers in terms of loss, instead of framing them in terms of gains.

Along with loss aversion, Jankus tested the countdown effect, the bandwagon effect, the gain effect, and a control (no effect) variation. For one week, in a website with an average of 21,000 weekly sessions, the biases were tested for page views, view time, page value, and conversions. A weekly test on this platform guaranteed at least 400 unique session views for each of the page combinations with each bias.

The control variation, with no effects on, performed poorly for conversions, time on page, and all the other metrics. Pages equipped with cognitive biases had better overall conversion rates.

The messaging tested by Jankus was meant to trigger different cognitive biases on visitors of a food delivery platform:

You can see the messages above frame decisions in different perspectives. For loss aversion, the message implies that the meal already belongs to the visitor.

How to frame loss aversion on your offers?

Let’s draw three guidelines from the three experiments of buyers under-pricing mugs, women acting on disease prevention after reading a negatively-framed brochure, and monkeys risk-betting to keep more grapes:

• Frame the offer in terms of loss.
• Make it risky.
• Offer a referent to base the comparison.

Let’s add three of Collier’s advice:

• Inspire the fear of losing.
• Be definitive, by setting a timeframe.
• Be specific, by stating a clear loss.

To sum it up, let’s check 13 techniques online vendors are using to frame loss aversion in their websites:

1. Discounts

The first money-saving technique that comes to mind.

If your goal is to inspire the fear of losing money, just tell your visitors they could be spending more to buy the same item or service. This is old, classic incentive.

DiscountHockey.com offers hockey gear and apparel at reduced prices, as you can see in one of their product pages:

For a riskless situation, an experiment gathered three groups of people: sellers, buyers, and choosers of coffee mugs; as Nathan Novemsky, from Yale University, and Daniel Kahneman, from Princeton University, reminds us.

The sellers received a coffee mug they would have to decide on a price for selling. No one wanted to sell their mugs for less than $7.12, while the buyers evaluated the mugs and established $2.87 as the maximum they would pay for acquiring them.

Between the $7.12 and the $2.87 price evaluations lies a gain/loss perspective. Buyers saw the mug as a gain, so they attributed a lower value to it, as they were cautious in not losing money either. Sellers, on the other hand, saw the mug as a loss of one of their goods, so they attributed a higher financial value to it.

What about the choosers? This group could choose between gaining a mug or gaining an amount of money. Different from the sellers, this group would not receive a mug and then exchange it for money, they would either get a mug or money.

How would they put a price on the mug? Those who chose money over mug evaluated $3.12 as a fair amount to receive. They didn’t see the mug as something they already owned.

Loss aversion plays upon rather risky situations than riskless ones as the mug or money dilemma. The choosers didn’t overprice nor under-price the product because there was no risk involved, they would gain something either way, be it money or mug.

However, in this case, choosers’ evaluation of $3.12 almost matches buyers’ predisposition to pay $2.87. This low difference suggests that, in regular purchases, buyers’ expectation of exchanging money for an item diminishes the impact of loss aversion. Buyers didn’t think they were losing money if they spent $2.87. If loss aversion showed up for this decision, buyers would have set much lower prices in comparison to choosers.

In risky situations, loss aversion certainly comes in. Let’s see how this cognitive bias helps people take action when a life-threatening disease is involved.

Loss Aversion on a Risky Context