Loss Aversion Bias and Client Retention

time bomb with lit fuse

Loss Aversion Bias and Client Retention

Loss Aversion Bias and Client Retention 2000 1333 Wi-Ai.net

“Losses loom larger than gains.”

This cheery quote comes from psychologists Kahneman and Tversky who, in 1979, identified Loss Aversion – the human tendency to prefer avoiding losses to acquiring equivalent gains.

This may seem pretty obvious (who on earth likes losses?), but Loss Aversion is another behavioural bias which can pose problems for financial services providers, fund managers, platforms, networks and others.

The issue is not that humans simply dislike losses, but that for many people the perceived pain of losing is thought to be twice as powerful as the pleasure of gaining.

This can, for example, result in individuals holding on to an investment which is no longer performing well (because they tell themselves there isn’t a loss until it’s realised, i.e. encashed).

Loss Aversion can therefore cause self-sabotaging behaviour by clients who might be so focused on avoiding losses that they cannot see the potential gains you could help them achieve. If you don’t have time to explore this with them, it may ultimately lead to dissatisfied customers, poor client retention and dwindling profits.

By helping customers understand and take ownership of their biases, Wi-Ai tools give financial services providers more time to focus on the positive stuff.

Cheers to that!

To explore whether Wi-Ai can help you and your customers master biases such as loss aversion, contact us at [email protected]

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