Bias in the market for change

Earlier this year I wrote about loss aversion and politics. Here’s a quick snippet on this from Felix Oberholzer-Gee’s excellent new book Better, Simpler Strategy. He’s covering three cases of technological change (radio, PCs, and ATMs) and notes that while they were expected to be pure substitutes for records, paper, and bank tellers, respectively, they were actually complements and increased demand for those things:

Did you notice a pattern in the three examples? In each instance, we predicted substitution when in fact the new technology turned out to increase the willingness-to-pay for existing products and activities. This type of bias is the norm. We fear change; potential losses loom larger than similar gains, a phenomenon that psychologists Amos Tversky and Daniel Kahneman call loss aversion. Loss aversion keeps us preoccupied with the risk of substitution even when we look at complementarities.

p. 81

Loss aversion doesn’t just change the politics of change, but the market for it, too.

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