There has been a lot of research over the years about the concept of loss aversion.  This research tells us that we as humans are more likely to prefer choices that avoid a loss than those that achieve a gain.

Turns out, research also indicates that our personality style drives our loss aversion behavior.

As a leadership coach, I have become a student of personality profiles, thanks to Vistage speaker, Stuart Friedman.   One thing I have learned, is the pace at which people make decisions is driven by their style.

Research by Alexander Chernev, Associate Professor of Marketing at Kellogg introduces the theory that personality style not only drives pace, it also drives choice.

Chernev’s research involved asking people whether or not they would choose to invest in alternative funds, some with potentially higher yields than ones they already owned.

Prevention-focused people—those concerned above all with safety and security—were more likely to stick with the status quo even when they were told that another option would most likely out-perform.

In contrast, promotion-focused people—those who focus on growth and development—were much more willing to venture into the unknown.

Additionally Chernev’s research uncovered another decision driver: regret aversion, people tend to blame actions that produce bad results more than they blame inactions that produce bad results.  In other words, people who switch to a new investment fund and end up losing money will experience more regret than if they took no action and lost money on their old fund.

How might we apply these findings as leadership lessons?

  • When deciding how to invest in our businesses?
  • When handing out raises?
  • When assigning employees to a new project?
  • When selling a new product line?
  • When defining the success factors for a new hire?

 

Elisa K. Spain

2 Comments

  • Reading this, I thought of the personality styles of the people I work. I immediately realized that I am mostly promotion-focused and my partner (Orbit co-founder Barrett Lombardo) is probably prevention-focused. I didn’t know about this research when we started the company, but this may be why we are good partners.

    This is also relevant to anyone who is in a new business role. If there are ways to discern the personality type of the prospect, it would help us understand how to best meet their needs, be they personal emotional needs or business needs.

    Thanks for the post, Elisa!

    • Andy,
      Thank you for sharing your story about how your style differences with you partner work for the two of you. I find this style knowledge helpful in my personal relationships as well as business – understanding what drives how people make choices can make collaboration and negotiation much more effective.

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