If you lost $500 dollars, how much money would you have to gain to offset the pain? You might say $500 dollars. But that would likely be wrong.
This simple question underlies one of the most fascinating psychological discoveries of the last several decades…a discovery that led to a Nobel Prize in Economics. This question also gets at the root of why change is so hard…and even why my wife decided to marry me. All profound implications from a pretty simple question.
In 1979, the psychologists Daniel Kahneman and Amos Tversky published what would become a landmark paper in economics, titled Advances in Prospect Theory. In the paper they demonstrated that people evaluate potential losses and gains differently. We might think the intensity of the pain caused by losing $500 dollars would be equal to the intensity of the joy caused by gaining $500 dollars. But in reality, losing tends to be almost twice as painful as winning. To offset the psychological pain of losing $500 dollars, we would have to gain $1000 dollars. In other words, losses hurt more than gains feel good.
This simple insight, that losses loom larger than gains, is called loss aversion. And it impacts us in countless ways. For example, when it comes to change, we tend to focus more on the pain of losing what we already have than on the potential benefits of what we might gain.
Loss aversion is also the reason my wife decided to marry me. When I graduated college, I knew I wanted to marry my then girlfriend Keshia. But she wasn’t sure…or at least wasn’t ready. But one day she had the thought that she didn’t want to lose me to someone else. Loss aversion. We got engaged days later. So, I’m definitely not anti loss aversion.
But, a focus on avoiding losses, rather than seeking gains, can make us irrationally afraid of change. And whenever I think about being afraid of change, I think of a simple, short parable I read as a junior in college that forever changed my view on change.
The parable shares the story of two mice, named Sniff and Scurry, and two people, named Hem and Haw. The four of them lived together in a maze where they searched for cheese. One day they found a pile of cheese, but the mice reacted differently than the people. The mice enjoyed the cheese, but kept their running shoes tied around their necks. The people, on the other hand, settled in, packed away their shoes, and thought the cheese made them happy.
Each day the mice inspected the cheese to see if there were any changes. When the cheese was finally gone, they weren’t surprised…they’d noticed the supply shrinking. They looked at each other, took the running shoes from their necks, laced up their shoes, and raced off to find more cheese.
But when the people noticed the cheese was gone, they shouted that it wasn’t fair. “Who moved my cheese?” they said. Finding cheese was hard, and they were comfortable with their lives centered around the pile of cheese. Plus, it was dangerous to go find new cheese.
Haw suggested they go look for the mice. Maybe the mice had found new cheese. Plus they had all run through the maze before…they could do it again. Hem responded that he didn’t want to get lost in the maze or make a fool of himself. So, Hem and Haw stayed put and got hungrier and sadder.
But one day Haw had had enough, and after a long search, found his running shoes. Hem told him not to leave, that maybe the cheese would come back. Haw responded that the cheese was never coming back. It was time to find new cheese.
“But what if there isn’t any cheese out there,” Hem said. “Or what if you can’t find it?”
Haw responded that the only way he’d find new cheese was if he looked for it. And with that, he left.
It was hard to look for new cheese. Haw felt old, slow, and out of shape. He got lost, he missed home. But he was taking control. Plus, he felt alive again as he remembered how much fun it was to look for new cheese. As he continued through the maze, he wrote messages for Hem, in case Hem came looking for him. One said, “What would you do if you weren’t afraid.”
Haw realized that he had always thought of change as leading to something worse, but he now realized that change was the key to progress. Plus, looking for new cheese was hard, but it wasn’t as hard as he’d imagined. Haw continued writing messages for Hem, such as “Smell the cheese often so you know when it’s getting old.” “Movement in a new direction helps you find new cheese.” “The quicker you let go of old cheese, the sooner you find new cheese.” And, “When you move beyond your fear you feel free.”
Eventually Haw found a new, bigger pile of cheese, and the mice were already there. Haw took off his shoes, but hung them around his neck this time. He also looked at the mice and admired them…they had a simple, trial-and-error approach: when the situation changed, the mice changed.
This parable has impacted my life, time and again. Eight months after starting my first job in medical sales, I thought of this parable and decided to switch to a career in real estate development. Two years later, in the middle of the Great Recession, I thought of this parable and decided to attend law school at age 30. Three years later I thought of this parable and decided to earn a PhD in business. Five years later, when I was almost 40, I thought of this parable and decided to do a multi-year post doc rather than take a job as a professor.
And at each of these points, Keshia thought of the parable as well.
We’d found lots cheese on our journey, but at each stop, we knew there was a better place for our family. And ultimately all of these decisions led to the dream job in the dream location… as a business school professor in a small, college town.
As a professor I have six years to get tenure, the biggest pile of career cheese imaginable. But if I get tenure, we will still keep our running shoes around our necks, because higher education is changing. Plus, getting fat on cheese isn’t the endgame.
But so what. Why does this matter?
According to the Greek Philosopher Heraclitus, the only constant is change. According to Zen Master Suzuki, Buddhism can be summed up in three words, “Not always so.” Rather than fight change, we can embrace it. Ed Catmull, the President of Pixar, was notorious for encouraging employees to embrace change. He taught, “There is no growth or success without change. As a child, everything is new. We have no choice but to learn and to change. Where along the way do we turn from the wide-eyed child into the adult that fears surprises, and seeks to control all outcomes…If you’re sailing across the ocean and your goal is to avoid the weather and waves, then why are you sailing?…You have to embrace that sailing means that you can’t control the elements—there will be good days and bad. But that’s the game you’re in.”
Kids, don’t let loss aversion make you too afraid of change. The only constant is change. Embrace it. Enjoy it. There is no growth without it. Ask yourself, “What would I do if I wasn’t afraid?” and then do those things.
It’s a simple idea, please take it seriously.
Get Nates Notes In Your Inbox
Subscribe to Nates Notes to receive a summary of each podcast episode delivered to your Inbox.