Prospect theory assumes that losses and gains are valued differently, and thus individuals make decisions based on perceived gains instead of perceived losses.
Perceptions of Gains & Losses
People put a value of losses twice what an equivalent gain is. Losses are twice as heavy as gains. 5 to 7 times. Losing $5 stings at least twice as much as gaining $5. Skewing in our brains over loss.
Prospect theory: if you think what you’re offering is worth $100 and only charging $80, they’re not going to make that exchange. Paying $80 for something, it’s got to be worth $160 in our heads.
An accusations audit?
People are more likely to do things to avoid losses.
What’s going to be lost if this isn’t done?
Taking people hostage to the future. If I can convince you to do all this work for me for nothing, all this business will come your way as a result, which is actually done a lot in the business community. Come and do this business at a cut rate, and we’ll introduce you to all this business and you’ll be fabulously wealthy as a result of our referrals. Well, if you can buy into getting all that money, now you’re being taken hostage to the future abd you’ll do the business for nothing because now you’re afraid of losig those referrals. Common and people catch onto it.
Not doing this deal, costs you everyday. If you do nothing, you lose. If you don’t address this issue, it’s going to cost you. If the status quo becomes loss, then people are more likely to make a decision to make a move. Because of prospect theory. The fear of loss in our head is huge.