Why Loss is Worse than Gain… and the Workplace Implications

I’m reading The Paradox of Choice by Barry Schwartz and have just finished a chapter that describes how people react to choices differently, depending on whether they perceive them to be a loss or a gain.  It struck me as useful on multiple levels when it comes to providing choices to our clients and to the people who move into the spaces we design.

Loss Aversion

Schwartz references a study by Kahneman and Tversky who have done research on framing and how it affects our ability to evaluate options and make decisions… called prospect theory. The idea with prospect theory is that people feel a “loss” more strongly than a “gain” when compared with the status quo.  According to this framing research, “Losing produces a feeling of negativity that is more intense than the feelings of elation produced by a gain.  Some studies have estimated that losses have more than twice the psychological impact as equivalent gains.  The fact is, we all hate to lose, which Kahneman and Tversky refer to as loss aversion.”

For those of us pitching the benefits of new workplaces and new ways of working to our clients, this means that the “new environment” must be perceived by occupants to be at least twice as beneficial as the one we are asking them to vacate.  Even if the current environment is not that great, people may not be willing to change because of their fear of losing what they have.  To feel good about a new workplace environment, those moving must feel there are significant benefits to working in their new environment versus the status quo.

It’s an even tougher selling job when the status quo isn’t all that bad.  An organizational change expert shared with me that if people feel their work environment is not bad to begin with (i.e. if it ain’t broke, don’t fix it), making the case for change is even harder.

Endowment Effect

Another theory Schwartz describes has to do with the fact that once something is given to you, it becomes part of your “endowment.” Even if something was given to you a short time ago, giving it up will entail a loss, and loss aversion will kick into effect.  Schwartz gives an example of a study where participants are given a coffee mug or a nice pen.  “The two gifts are of roughly equal value and randomly distributed – half of the people in the room get one, while the other half get the other.  You and your fellow participants are then given the opportunity to trade.  Considering the random distribution, you would think that about half the people in the group would have gotten the object they preferred and that the other half would be happy to swap.  But in fact, there are very few trades.  This phenomenon is called the endowment effect.”

In the workplace, we often refer a version of this psychological phenomenon as “entitlement.”  People who have been working at an organization for a certain amount of time feel as if they own or are entitled to a certain size office or space.  That is why it is easier to provide people new to the organization new kinds of space.  Newcomers don’t feel a sense of loss when their office gets smaller or they are moved into a workstation or asked to share a desk.  Their frame of reference and sense of ownership of their space is different.

So what can loss aversion and the endowment effect teach us about making workplace change (or any change for that matter?)  Here are some tips for when new workplace ideas have the best chance of gaining traction and getting employee support:

  • When a company or business unit is just being formed
  • On the heels of a reorganization (people have already been “reset” in their organizational expectations)
  • When there is a move already happening (the choice is to move or get no seat at all)
  • There is a new building being built (moving into the new shiny object is generally perceived much better than staying in an old one)
  • A strong leader is in place that can sell their vision for creating something new, and the choice for status quo is not perceived to be “aligned” with their vision
  • The new workplace is piloted by others who can vouch for the fact that the new workplace is much better than the old one

If more than one of these events is happening at once, the chances of success are even greater. Keep in mind, the more established the organization, the longer workplace change requires to take hold.  It just means the business case for change becomes even more important and needs to be convincing… which isn’t a bad thing, just an inherently human one.

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