Loss Aversion Theory – when to wait, when to walk away

By Karen Topakian

Recently I learned about Loss Aversion Theory. An economics and decision theory that effects our lives daily.

The basic premise. We prefer avoiding losses rather than making gains or profits. According to the website, Mapsofworld.com, “if a person loses $100, s/he will lose more satisfaction compared to another person’s satisfaction gain over an unexpected gain of $100.” 

In social psychology, we know that it isn’t the loss that matters but the perception of loss. For example, once we’ve committed time and energy to an activity or concept, it is nearly impossible to convince us that it is unworthy.

Any time you’ve waited for a bus instead of walking, you’ve encountered Loss Aversion Theory. The longer you wait, the harder it is to start walking because you’ve already spent time waiting. (And if you live in SF and are waiting for the J-Church line, you may be waiting a long time because, like Godot, it never comes.)

Eventually, you have to ask yourself, “How bad are my losses before I change course?”

This theory not only applies to those of us waiting for the bus. But for those of us waiting for our elected leader(s) to determine that our losses are bad enough to change courses in Iraq and Afghanistan.

Isn’t the Afghanistan death toll of more than 1,200 US soldiers and more than 700 others not to mention the Afghani deaths bad enough? Or have we not reached the magic number before we change course?  Maybe deaths aren’t what determine losses. Maybe those extinguished human lives aren’t part of the calculation at all.

Learning about this theory has caused me to stop waiting for buses and encouraged me to change course immediately when things go awry. It’s also made me realize that our leaders need to stop waiting and start walking away from wars we started that can’t be won. Or better yet, stop waging them in the first place.

Paper v. Pepper

by Karen Topakian

Last week when our Sunday Chron newspaper didn’t arrive I walked around the corner to our favorite market, Bi-Rite, to buy a copy along with one red pepper that Peg needed for dinner. On my short walk back home, I looked at the sales receipt and noted that both items cost nearly the same amount of money. $2.64 for the pepper, $2.74 for the paper.

Yup. One good sized organic red pepper cost the same as the Sunday edition of the San Francisco Chronicle.

How could that be?

A lot of labor and resources go into producing a Sunday paper with its endless raft of advertisements plus the 15 sections that comprise the actual paper.

I know the pepper required resources, too. Land, water, soil, labor, fuel, transportation…

But is the labor of growing our food equal in value and cost to the labor that combines to write, edit, lay out, print and deliver the somewhat hefty Sunday paper?

Were they really equal in value or just equal in cost? And how is that determined? Is the price based on the true cost of production or what the market can bear?

Could one of my smart friends explain this to me? I’m stumped.