Mini Ep. 67: Loss Aversion

Hey everybody, before we get started this week, I have huge news. She actually did it. We're pleased to announce that Beatrice Jin, top-ranked women's competitor in North America and long-time BJJ Mental Models premium community member, has published her first ever course with us, exclusive to BJJ Mental Models. It's called Stop Being Nice. It's a three-part audio series designed to solve real mindset problems that regular folks experience in jiu-jitsu. If you struggle to be aggressive and competitive in jiu-jitsu, you'll find the solutions here. If you're already a BJJ Mental Models premium subscriber, you've already got access, and if you are not, good news, you can get it now and get your first week free, go to BJJmentalmodels.com and check it out today. Hey, welcome to BJJ Mental Models. I'm Steve Kwan. BJJ Mental Models is your guide to a conceptual and intelligent jiu-jitsu approach. And in this week's episode, I want to talk about a psychological concept called loss aversion. It's an important mindset mental model to understand, very relevant to real life, but also relevant to jiu-jitsu as well. Loss aversion tells us that we feel losses as more painful than equivalent gains. So, we tend to avoid situations where those losses occur. Let me give you an example. If I give you $100, you're probably going to be happy about that, but that happiness will be fleeting pretty quickly. If I steal $100 from you, you are going to be way more upset about that loss than you would be about the opposite equivalent gain. And you can probably look at your life experience and think of similar examples like that. We as human beings tend to feel losses as more painful than equivalent gains. Human beings are naturally risk-averse, and so this loss aversion isn't always a bad thing. It is good to avoid situations where losses could happen. We don't want to lose something for no reason. But being too afraid of losses can lead to loss aversion, which is where we avoid situations where losses could happen, even if the net result of those situations would be a good thing for us. So some examples of this that you might be able to think about, maybe you don't enter a tournament because you're afraid you're going to lose. Maybe you don't roll with a bigger, stronger, more experienced grappler because you're afraid of losing. Maybe you don't invest your money because you're afraid you're going to lose that money. Maybe you're afraid to leave a stable job to start a business you've always wanted to start because you're afraid of losing that stability. These are all examples of loss aversion. It is a common human tendency. So if you experience this, this is not a problem with you by any means. This is just something that we all deal with. Now, I've got some suggestions on how you can overcome loss aversion. The first one is to determine if the loss is recoverable. There's a difference between a recoverable loss versus a non-recoverable loss. A tournament is a recoverable loss because you can always just go and do another tournament. But there can be losses that are unrecoverable. Maybe the thing that you stand to lose is something you can never get back. And those situations should be treated a bit more carefully than situations where the loss is recoverable. What you might find is that a loss may feel like it can't be recovered, but if you really think about it, maybe it's not as severe as you thought. Another tool is to calculate the risk versus reward. When you feel like you're getting waylaid by a cognitive bias or a psychological tendency like loss aversion, it can be helpful to look at actual data and try to think objectively. Risk reward tells us to look at what we stand to gain and calculate the ratio of that versus what we stand to lose, and then make an educated decision as to whether the risk is worth the reward. A common example that is cited here is investing in the stock market. People are often hesitant to invest in the stock market because they're afraid of losing their money. However, over the long term, if you smooth out gains and losses over time, if you invest in a broadly indexed fund, what you'll find is that you're probably going to be way better off investing in the stock market than just parking your money. Why? Because if you park your money, you're unlikely to be able to even meet inflation, and that means you're probably going to wind up losing money over time. However, if you invest over a long period of time, even if there's a lot of losses, if you look historically, you're probably going to have a lot more gains. So even when you factor in those losses, they're likely to be eclipsed by those gains, and you would lose out on those opportunities to grow your money if you were afraid of losing it. And then the third pointer that I bring up is to treat loss like an investment. This is a concept that I learned from Josh Waitzkin in his excellent book The Art of Learning. He refers to it as investing in loss. This is a mental reframing tactic where we learn to think of losing, not as something bad happening to us, but as an opportunity to learn. You've probably heard the old saying in jiu-jitsu, you never lose, you either win or you learn. This is basically the concept of investing in loss. And whenever you catch yourself being down on yourself for losing, instead try to reframe that mentally and think, no, this was data. This was a learning opportunity that I can use to get better. I am happy I got this learning opportunity because this will be valuable to me. So those are three quick tips to help overcome loss aversion. Number one, determine if the loss is recoverable. Number two, calculate the risk versus reward. And number three, treat loss like an investment. This is an example of a mental model that is helpful both on and off the mats. It's the kind of thing we talk about at BJJ Mental Models. If you want more like this, there are tons of mini episodes like this one at BJJmentalmodels.com, plus a database of concepts like this that you can read up on. And if you want to level up with us, go to BJJ Mental Models Premium. If you like Audible and Masterclass, and you like jiu-jitsu, you're going to like BJJ Mental Models Premium. It is the world's largest library of jiu-jitsu audio courses on concept, strategy, tactics, mindset, and philosophy. It is our best tool for helping you really put a footprint on the sport of jiu-jitsu and get the most out of it. So all of that is at BJJmentalmodels.com. Thank you again for listening to this, and I will talk to you soon.