The population of the United States is experiencing in real time an extreme example of loss aversion. President Trump’s inability to accept an apparent loss in the presidential election has led to an irrational decision to pursue a legal strategy that has an extraordinarily low probability of success. At the time of this writing, the president would need to overturn the results in at least two, and possibly three, states to alter the outcome of the election. So far, no evidence to support a legal challenge has emerged. Election experts of both parties have expressed their views that President Trump will fail and that the election is over. So, why does the president persist? The answer lies in the psychological concept of loss aversion, a type of cognitive bias that provides essential lessons to every negotiator and mediator.
More than 40 years ago, two Israeli psychologists, Daniel Kahneman and Amos Tversky, documented loss aversion, an important psychological barrier that interferes with an individual’s ability to make rational decisions that would be in the individual’s best interests. They conducted a simple experiment. They told two sets of doctors that they had a patient who had a terminal disease and would die in seven years without an operation. One panel of doctors was told that a surgery would save the patient and had a 90 percent chance of success. The other group of doctors was told that the surgery would save the patient but had a 10 percent chance of immediately causing death. Interestingly, the first set of doctors was much more likely to operate, although the two choices were statistically identical. The researchers concluded that the pain of losing is psychologically twice as powerful as the pleasure of gaining. In another example, the pain of losing $100 is about double the joy of winning $200. So, President Trump’s behavior is predicted by this now well-established theory of behavioral economics.
But how does President Trump’s behavior apply to negotiations and dispute resolution? As long as disputants see the terms of settlement as a “loss,” their perceived cost of accepting a settlement remains high, often too high to lead to a resolution. However, losses can often be “reframed” as “wins.” Taking the example of President Trump, many election analysts point to the success of down-ballot Republicans running for the Senate, House of Representatives, and state legislatures. Democrats had long been projected to be the favorites to win many of these races. Instead, favored democratic candidates for Senate lost and, instead of the projected gain of five to 15 seats in the House, Democrats lost seats. Not a single state legislature was flipped. The most accepted explanation is that President Trump was able to draw to the polls an historic number of voters, more than 71 million, who helped the party stave off the Democrats. By any measure this could be recognized as a huge “win” for President Trump, and his closest advisors are likely to be making this argument to him.
Similarly, many disputes can be settled if the negotiators focus on the advantages of settlement. Mediators also frequently remind a recalcitrant party of all the benefits that they will gain from settlement while downplaying the perception of losing. Winning and losing is often in the eyes of the beholder. So, a lesson lawyers who negotiate for their clients can take from this election is the need to help their clients and opposing parties see the winning side of a settlement and minimize the fear of losing. In this way, parties may succeed in making more rational decisions from which they will benefit and overcome loss aversion.