Question

What information had the greatest impact on the way you think about psychology? How will you apply this new knowledge in the future?

Answer 1

While studying and learning about psychology I came across a concept called "loss aversion". I was really amazed to know how it affects your decision making.

This concept comes under cognitive psychology and decision theory. Loss aversion is defined as people's tendecy of preferring to avoid looses to aquire same amount of gains. For example people believe that it is better not to loose $ 10 that they have than finding $10. This is popularly captured in the saying " a bird in hand is worth two in the bush.

According to the studies Daniel Kahneman and Amos Tversky were the first to fully recognize the importance of loss aversion phenomenon for better understanding of decision making. In the further researches it's effects were shown in many fields such as economics, medical, sociology etc. Let us discuss below about it's effects and uses in different domains.

In economics we have to study how consumers make decisions of buying. How these decisions create demands. For example consumer behaviour studies show that consumers respond more to increase in price than to decrease in price. This theory has a wide uses in economics too. The policy makers or bussinessmen etc., use this concept to make policies that would give a better result when applied in real world.

Similarly this concept is not confined to our attachment to material objects only. This applies to our way of dealing with ideas. For example once people take ownership of a political philosophy we value it more than what it's worth. People don't like to loose an argument. They may disregard other's idea which may be better than their own.

People go around making decisions everyday that come out of compulsion of this phenomenon of our psychology that are not always best decisions, without even realizing it. The knowledge of the effects of loss aversion on our thought process and decision making can make us more concious about the process and we may control these effects to some extent. Hence we may make better decisions after knowing and realizing this. Therefore this knowledge may help me make better decisions in the future. This knowledge of loss aversion may help me deal with the changes related to loss in any part of life in the future.