In a newsletter about four years ago I covered loss aversion and the curious thing that tends to happen when a team is just behind at half time. There have been a lot of new subscribers since that newsletter, and as it is particularly topical I have decided to repeat the theme of the newsletter and add an additional perspective on change management.
Coming From Behind
Two researchers studied 60,000 games of top basketball in America over about a ten year period. They found that a team just behind at half-time is more likely to win from that point compared with being just ahead at half-time. The tendency to come from behind is explained by the instinct of Loss Aversion.
In the analysis of the data, as you would expect, teams that are well ahead at half-time invariably win from that point (teams that are ahead by six points at half-time win 80% of the time). But the reverse happens at zero. Teams that are behind by a point at half-time win more often than teams ahead by one.
The effect is a motivational one. Humans are more motivated by avoiding loss than by the opportunity to gain. So for a sports team, there is more motivation and drive to overcome the loss than to hold on to the slender gain.
(Reference: Jonah Berger and Devin Pope, “Can Losing Lead to Winning?” in Management Science Vol 57, No 5, May 2011, pp. 817-827.)
There are a number of implications of Loss Version for workplace leadership.
Implications for Change Management
Loss Aversion explains what really happens when people face a workplace change. What appears to be resistance is not actually resistance to change. When people first hear about a change they are compelled to make sense of how the change might affect them. If we don’t have enough information at that moment, and we are not sure what the change might mean, then Loss Aversion tends to drive people to assume the negative. It’s a natural defence to keep out of harm’s way as the primary motivator.
So, when leading a change, taking into account Loss Aversion as the default, there are a number of leadership actions we can choose.
Influence how people feel when they first hear about the change. Given that most change turns out to be “okay” we can save a lot of anxiety and distraction if we give people the complete story in a way that the can make sense of the likely impact on them.
If the change involves actual loss for a person or group, attend to that actual loss (such as by staggering the loss to reduce the emotional angst).
Anticipate that people will experience a hierarchy of loss concerns. When facing actual or perceived loss, people will tend to be anxious about a primary concern (such as loss of job). When that first-order concern is answered, then people quickly skip to the next level of concern. When people are raising apparently incidental things, rather than being critical of staff, reassure yourself that you have covered the big issues and you are now down to the minor items.
If the change involves a loss for people, face up to the people losing. Their feelings are worse if the leader does not even front up to explain the situation.
Implications for Leadership
For group leadership generally there are a number of implications of Loss Aversion:
Next time your team is just missing a target, don’t panic and don’t play heavy. The key thing is to take time out (a half-time break), discuss the situation of being just behind, and then human motivation will kick in and the group is likely to achieve the goal in the end.
Make comparisons to performance standards relevant to the person’s level of experience. An inexperienced person should have targets set for a novice, versus an experienced operator or a person at the mastery level with targets for their capability. Their point of comparison should be relevant and achievable for them.
With individual feedback, helppeople believe they have the ability and your confidence to achieve the target. People who feel they are foundering are more likely to give up than if they feel they are just behind and can still achieve the goal.
When communicating, let people know the full picture so that they can classify the situation and avoid the default of being worried. For example, if you say to one of your team. “I’d like to see you at 10 o’clock,” and give no more information, then the person will invariably assume the worst.
Unfortunately with the Rugby World Cup final last weekend between New Zealand and Australia it looked like the score was going to close at half-time with Australia just behind (and New Zealanders who know about human instincts would have been very worried). But on the stroke of half-time New Zealand scored a try and went to the break with a commanding lead. In the end, New Zealand won convincingly – congratulations to the All Blacks.