Brian Gubernick explains loss aversion, the psychological principle that people fear losses more than they want gains. He uses the Cuban Missile Crisis and the Emancipation Proclamation as examples, then shows how to frame negotiations around what the other side stands to lose to increase your influence in deals.
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Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. Let's get into today's topic. Today I'm going to be discussing loss aversion. Now, why am I talking about loss aversion? Well, it's because my friend Julie recently shared with me that after many years of ignoring this book, Julie has decided to now finally read it, and it's an excellent one. It's called Never Split the Difference by Chris Voss, a former FBI negotiator who talks about negotiating strategies and techniques based off of his own experiences in the FBI. And that book, Never Split the Difference, was my favorite book the year it had come out. I don't know, it was probably maybe 4 years ago, maybe 5 years ago, I'm not quite sure, but it was my favorite book and it's one of the most gifted books, like books I've gifted to others, that I've ever had. And so I like it that much. And when Julie let me know that she was reading the book, it made me think around the book and some of my favorite parts. And probably one of, if not my favorite tactic that I drew from the book, was the influence on negotiations in leveraging loss aversion. Now, what is loss aversion? What Chris Voss explains in Never Split the Difference is that people are often more motivated to avoid losses, to avoid pain, than to gain equivalent rewards. So if you could understand the psychological bias that people, um, demonstrate, then you could be leveraged in negotiations by framing proposals or framing solutions in terms of what the other party stands to lose if an agreement is not reached. Now I want you to think about loss aversion in your own world. If you're a salesperson or if you're a leader, maybe you've tripped and fallen into leveraging the loss aversion technique and didn't even recognize. But have you leaned more into the potential losses to influence someone to make a certain decision, or the potential losses versus what they stood to gain. And if you thought about it more purposefully, could it adjust or influence your decision-making or your sales abilities? Now I wanna give you a couple examples around loss aversion to illustrate what in fact it actually means and how it works in the real life, real live world. Let's talk about the Cuban Missile Crisis. Cuban Missile Crisis was 1962. Most of us have heard of it. I think some of us probably know it inside and out. Others are maybe a little unclear as to what the Cuban Missile Crisis was all about, so let's talk about it. During this crisis, the US and the Soviet Union were engaged in a standoff, and the standoff was about the placement of Soviet nuclear weapons in Cuba. And JFK, the president at the time, he and I think his advisers really devised a strategy that would in fact leverage loss aversion to their advantage. See, Kennedy and his team, I think the world, understood that both sides wanted to avoid a nuclear war. They also recognized the potential losses involved in escalating the conflict. So they framed— JFK framed his approach in terms of the potential catastrophic consequences if we couldn't come to an agreement with the Soviet Union. So Kennedy emphasized that, "Hey, if we don't come to an agreement, there's going to be a full-scale nuclear war, and if that happens, it's going to be disastrous. It's going to lead to destruction." of entire nations. So by highlighting the potential losses and the catastrophic impact that not coming to an agreement would cause, Kennedy created a sense of urgency and conveyed that the cost of not reaching a resolution would outweigh any gain had by either side. So what ended up happening? The US and the Soviet Union agreed to a resolution that involved the Soviet Union removing their missiles from Cuba and the United States providing assurances to the Soviet Union that it would not invade Cuba, invade the island. So loss aversion in this example showed that potential losses can motivate parties in negotiation to reconsider positions that maybe they thought they'd never walk away from. Another good example, I'll be a little briefer with this one, but another good example is the Emancipation Proclamation. In 1862, Abe Lincoln put the Emancipation Proclamation out there during the American Civil War. And he leveraged loss aversion. The Proclamation declared that all the slaves in the Confederate territories were to be considered legally free. See, during the Civil War, the Union and the Confederate forces were engaged in some nasty battles over the future of slavery. And Lincoln recognized that both sides had a strong aversion to losing the war, It also understood the potential losses associated with continuing slavery. So by issuing the Proclamation, Lincoln aimed to change the dynamics of the war by framing it as a fight for freedom and a fight for human rights. And the Proclamation threatened to deprive the, the Confederates of their entire economic foundation, which which unfortunately was slavery. And so the losses to the Confederacy would be even greater if its labor force and its economic foundation were completely threatened. So Lincoln went ahead and highlighted the moral imperative of ending slavery, and also highlighted the potential consequences for the Confederacy if it didn't surrender. So bottom line goal was incentivize the Confederacy to join, rejoin the Union and keep the U.S. together, and it was successful. So while the Emancipation Proclamation did not free, immediately free, all slaves, because it only applied to the Confederacy, it did have a major, major impact on the war and the eventual abolishment of, of slavery in the U.S. So Lincoln used law subversion there. So I want you to think about your world. Maybe it's a transaction that you're dealing with. If you're in real estate, maybe it's a buyer that you're working with, or a seller, or an opposing sides buyer or seller. Maybe you're doing a business deal of some sort. Maybe you're working on an employment agreement with a prospect, whatever it may be, when you— when there are multiple parties to a negotiation. And we've been talking about the highlights or the opportunities for one side or the other. Is it possible today, as the focusing question, to maybe look at it from a slightly different perspective and ask yourself, Man, if this deal doesn't get done, what does the opposing side stand to lose? What does this look like if this deal doesn't get done for all related parties? What's the ripple effect? We talked about it the other day, second order consequences. What are the second order consequences here? And can I start discussing those right now, bring light to them, create this desire to avoid loss and in doing so prompt the negotiation to, to move, be moved along further and quite possibly reach an amicable resolution. So that's the focus. The other side, the negotiation, is there something that they stand to lose and should you take the approach of potentially highlighting it, discussing What's at risk? And does that prompt a different conversation to be had? Loss aversion, really, really effective tool, as are all of the tools that Chris Voss mentions in his book, which I do highly recommend you take a look at if you've never read it before. That's all I have for you today, the No Days Off Podcast. Thank you so much for listening. And remember, every single day brings a new opportunity to get better. So let's get after it.
