“Dare to be…. Beware it’s the losers who may determine your success”
I never thought that Desert Island Discs would be a source of inspiration to me but a recent guest – Daniel Kahneman who was awarded the 2002 Nobel Memorial Prize in Economics for his work in Prospect Theory and behavioural economics – provided me with some further insight into the difficulties of initiating change in business.
For anyone who is struggling with business inertia; lack of “buy-in” to new initiatives; frustrated with people’s attitudes to change, I suggest that this article may provide an alternative solution to helping you unlock this common problem.
In simple terms change is often blocked by the “potential losers” of any change process. As Machiavelli identified in the 15th century:
“There is nothing more difficult to carry out, nor more doubtful of success,
than to initiate a new order of things. For the reformer has enemies in all those who profit from the old order, and only luke warm defenders in all those who would profit from the new order. This lukewarmness arising partly from fear of their adversaries and partly from the incredulity of mankind, who do not truly believe in anything new, until they have had actual experience of it.”
Daniel Kahneman’s work identified that people do not behave as traditional economic theories would suggest but rather on the basis that we value losses much more harshly than gains. (if you lose £100 you would will lose more satisfaction than you would have gained from winning £100).
In his book Thinking, Fast and Slow he explains:
“Animals, including people, fight harder to prevent losses than to achieve gains. In the world of territorial animals, this principle explains the success of defenders. A biologist observed that “when a territory holder is challenged by a rival, the owner almost always wins the contest -usually within a matter of seconds.” In human affairs, the same simple rule explains much of what happens when institutions attempt to reform themselves, in “reorganizations” and “restructuring” of companies, and in efforts to rationalize a bureaucracy, simplify the tax code, or reduce medical costs.
As initially conceived, plans for reform almost always produce many winners and some losers, while achieving an overall improvement.
If the affected parties have any political influence, however, potential losers will be more active and determined than potential winners; the outcome will be biased in their favour and inevitably more expensive and less effective than initially planned.
Loss aversion is a powerful conservative force that favours minimal changes from the status quo in the lives of both institutions and individuals.
Prospect Theory identifies that we tend to value a gain that is certain more than a gain that is less than certain, even when the expected value of each is the same. The opposite is even more true for losses: we will clutch at straws to avoid a certain loss, even if it means taking even greater risks.
In general, when we perceive higher risk we focus on loss (would you buy a £10,000 diamond on eBay sight unseen?), whilst when risk is seen to be lower, we switch to gains e.g. buying a lottery ticket – a mere £2 might win you multi millions.
Examples of the research:
Tversky and Kahneman told people to assume there was a disease affecting 600 people and they had two choices:
- Program A, where 200 of the 600 people will be saved .
- Program B, where there is 33% chance that all 600 people will be saved, and 66% chance that nobody will be saved.
The majority of people selected A, showing a preference for certainty.
They then offered them another choice:
- Program C, where 400 people will die.
- Program D, where there is a 33% chance that nobody will die, and 66% chance that all 600 people will die.
Most people now selected D, seeking to avoid the loss of 400 people.
Notice how the framing makes the difference. A and C are the same, and B and D are the same.
The implication for getting people to adopt change?
- Identify the potential losers and be ready for the fight that they will initiate. Don’t just focus on the business benefits – focus on the personal impacts.
- If your change programme results in perceived high risk – focus on loss.
- If it is perceived to be low risk – focus on gain.
- If you want them to focus on loss or gain, then set up the perceived risk accordingly.