Behavioral economists tend to talk about problems in human reasoning and decision making that lead to lower-than-optimal choices. This behavior leads to less-than-optimal philosophies among those who listen to these professors. Loss aversion is one of these “cognitive biases” (cognitive added for redundant scientific effect; would be delighted to meet a non-cognitive bias). Loss aversion is the preference to avoid bad future outcomes in a way that makes people “irrationally” avoid risks. Seems like a strong model for making choices when the losses and gains are perfectly fungible and the downside is acceptable. And irrationally is in scare quotes because we’re picking apart economic utility as the fundamental logical principle here.
Loss aversion leads people to buy insurance (and extended warranties) for things that they could pay to replace out of less than 1% of their checking account. It also leads people to avoid gambling when the bet has a great probablity:payout ratio. Always put it all on red if the house has miscalculated, essentially (assuming you can afford to lose it all). These behavioral economists have done something useful by demonstrating that people do not act as neoclassical economists would have them; the behavior people, perhaps inadvertently, help dispute the “rational progression of history” notion.
The problem with these behavioral economists is that they see our irrationality as a problem. They argue that if you got that amygdala removal surgery and eliminated your fear of certain losses, you’d be living a better life. And for those who are winning the capital accumulation game by gambling well and steering into the right loss skids, this is tautological. But what if there were a far more difficult answer to the question of how to act? What if individual people and groups were not actually explainable by sociological theories parading as physics making history seem like math?
Logic, reason, losses; all of these concepts have different definitions for different people (and definitions that change radically even within individuals across time and context). It’s nice to imagine that we could get to the bottom of “how humans are”. But there is no bottom to that infinite well (certainly no bottom that could be identified by a few psych experiments on undergrads or articulated by powerful people in love with the idea that the reasonable hand of history passed them their scepters).
The distinctions between people are an argument for flexibility in rule-sets and humility about the way the die has been cast upon the economy, communities, and individual humans. Some will be terrified of losing their freedom to people they do not trust or believe. Others will fear anthropogenic climate change. Still others will be most afraid of prison, disease, or starvation. The focus on loss aversion in a financial context has become a mechanism to keep people from thinking about other (possibly more important) losses and gains while drawing a map of history that might be a bit too simple (and triumphant). Fear isn’t going away, but the way we manage risks and losses can change.