When something we like is taken away or threatened to be taken away, we get upset. Taking away people’s freedom, status, money or anything they value will result in Deprival Super Reaction Syndrome(DSRS). From the Psychology of Human Misjudgment – Charles Munger
The Mungers once owned a tame and good-natured dog that displayed the canine version of Deprival Super Reaction Syndrome tendency. There was only one way to get bitten by the dog. And that was to try and take some food away from him after he already had it in his mouth.
We see this behavior a lot in Humans too. My younger son is 18 months old. While he was watching ‘Gangnam Style’ song in iPhone, I snatched the iPhone in the middle of the song. He went nuts and started crying loudly. He stopped crying after I gave the phone back to him. DSRS in Action.
In 2010 Greece had to implement Austerity measures to make budget cuts of almost 30 billion euros to qualify for a second bailout package from the IMF and the EU. Some of the austerity measures were
- Increase VAT.
- Large cuts to social services, in particular the health sector.
- 20% reduction of the minimum wage for younger workers.
What followed immediately?
We place higher value on something when we almost have and lost it. From the Psychology of Human Misjudgment – Charles Munger
Electronic machines enable these creators to produce a lot meaningless bar-bar-lemon results that greatly increase play by fools who think they have very nearly won large rewards.
I still remember the cricket test match between ‘India Vs Pakistan’. The match was played at MA Chidambaram Stadium, Chepauk, Chennai during Jan 1999, India lost the match by 12 runs. Chasing 270 runs in the second Innings ‘Sachin Tendulkar’ scored 136 runs and we were very close to winning the match. India lost the final 4 wickets by just adding 4 additional runs. I was upset for a week. The reason is that we came so close to winning and then lost the match. Near misses are very painful.
You can create demand by creating competition. If an item is made scarce and you make people bid for that item then you create a huge demand. ‘Thanks Giving’ holiday shopping is an excellent example of this. Only very few items are sold at bargain prices. Hence a huge demand is created. Once the door gets opened everybody runs to get the scarce item. Most of them will not be able to buy these bargain items. Instead of returning empty handed they purchase the other items at a regular price.
Our loss aversion makes us more sensitive to information that has negative implications for us. I was never consistent with my workouts. In spite of knowing all the benefits of daily exercise I was never consistent. One day I had a general health checkup and my fasting blood sugar levels were slightly higher. The doctor who looked at the results told me that if I do not exercise regularly I would get diabetes. From that day onwards I am very consistent with my workouts. Focusing on the loss did the trick.
What should I do
- If you want to persuade people focus on what they will lose rather than the gains.
- You don’t change something people have.
- If possible avoid going to auctions.