What is “loss aversion,” why losses have a much greater psychological impact on us than acquisitions of the same size, and what happens in moments of winning or losing in our brain? Stanford psychology professor Russell A. Poldrak explains briefly.
Imagine this scenario: a friend offers to flip a coin and give you $ 20 if it comes up heads. If heads come out, you will give him $ 20. Would you accept such conditions? For most of us, the decision to take a risk requires that the amount we could win was at least double the amount we could lose. This tendency is called "loss aversion" and reflects the idea that losses have a much greater psychological impact than gains of the same size.
So why are we more sensitive to loss? In 1979, psychologists Amos Tversky and Daniel Kahneman developed a successful model of behavior called prospect theory, using the principles of loss aversion to explain how people evaluate uncertainty. More recently, psychologists and neuroscientists have discovered how loss aversion can work at the neural level. In 2007, my colleagues and I found that areas of the brain that respond to values and rewards are more suppressed when we evaluate potential loss, while they are activated when we evaluate a gain of the same size.
In the course of the study, we monitored brain activity while participants were deciding whether to gamble with real money. We found participants to have increased activity in reward-related neural networks as reward increased, and decreased activity in the same circuits as potential losses increased. Perhaps most interesting was the fact that the responses in the brains of the subjects were much stronger in response to potential losses than to profits - a phenomenon we have dubbed "neural loss aversion." We also found that humans exhibit varying degrees of sensitivity to loss aversion, and these vast neural responses predict differences in their behavior. For example, people with strong neural sensitivity to both losses and gains are more inclined to take risks.
Another theory is that losses can cause more activity in areas of the brain that process emotions, such as the islet and the amygdala. Neuroscientists Benedetto de Martino, Ralph Adolphs, and Colin Camerer, who studied two people with a rare amygdala lesion and found that no one showed loss aversion, suggested that the amygdala plays a key role. A large 2013 study by Italian neuroscientist Nicola Canessa and his colleagues confirmed our initial findings and also showed that activity in the insular zone increases while potential losses increase. Taken together, these findings are likely to help explain loss aversion, but understanding how these different neural processes work in different people in different situations warrants further study.