Sunday, November 27, 2011

Loss Aversion & Supporters: Lessons for the Liberal election primaries

In an article in the Globe & Mail headed The heart of reason, and the reason of the heart, Janice Gross Stein reviews Thinking, Fast and Slow by Daniel Kahneman.

She writes:

It is impossible to exaggerate the importance of Daniel Kahneman’s contribution to the understanding of the way we think and choose. He stands among the giants, a weaver of the threads of Charles Darwin, Adam Smith and Sigmund Freud... He is among a handful of founders of the field of behavioural economics, a branch of economics that is challenging long-standing economic theory and reshaping the making of public policy. Kahneman’s work speaks to everyone who struggles to understand why human beings think the way they do.
Janice Gross Stein

We pay far more attention to the likelihood of loss than we do to the likelihood of gain, in part because loss is so much more painful than an equivalent gain. Think how much more pain we feel when we lose $100 than pleasure when we find $100 on the street.

What is the impact of loss aversion theory on:

(1) the use of the primary system to select the next Liberal leader, and

(2) the decision to allow Supporters to participate in the election of the leader and of candidates to run as MPs without having to pay anything or to join the party as a member?
Daniel Kahneman

Let's have a closer look at loss aversion theory :

In economics and decision theory, loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains...  This leads to risk aversion when people evaluate a possible gain; since people prefer avoiding losses to making gains...  

Loss aversion implies that one who loses $100 will lose more satisfaction than another person will gain satisfaction from a $100 windfall. In marketing, the use of trial periods and rebates try to take advantage of the buyer's tendency to value the good more after he incorporates it in the status quo.

I've come to two conclusions.

First, we should frame the offer to Supporters when asking them to become Supporters in such a way that joining as Supporters appears as a way to avoid a loss. 

This would be more powerful as a motivator than to tell them that they could join at a discount from the traditional Membership fee of $10.

One way to do this is to highlight that the voter will face a loss if he or she does not become a Supporter. The loss is the chance to participate in the historic election of the leader of a major political party through the primary system.

Secondly, the loss aversion theory should explain the brilliance of widening the selection of the next leader and of candidates for MP to include Supporters. Once a Supporter becomes a Supporter, then this theory predicates that that person will hang in there as a Liberal party supporter even after the selection of a leader.

The Globe & Mail article helps here with this explanation:

Our loss aversion, Kahneman tells us, is reinforced by the human tendency to value what is ours far more once it is ours. Perhaps that is what explains the longevity of most marriages.
So, once we entice voters to become Supporters, we will be cementing their attachment to the party in a very powerful way.

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