Prospect theory and Career choices
How loss-aversion psychology plays with our career decisions
Loss aversion, a concept born out of Prospect theory, not only explains the seemingly irrational economic choices but also career decisions. This blog post discusses how loss/risk aversion bias may affect our career decisions.
The core idea of the theory is that we have a tendency to attach more value to losses than to equivalent gains. The loss of $100 is more hurtful than the joy of winning $100. Studies suggest that the emotion of loss is twice as powerful.
Evolution rewarded risk aversion in old times. In primitive age for a hunter-gatherer, losing a day of food was a bigger deal than collecting an additional day of food.
Even though the stone age is history, the asymmetric shape of risk aversion is still hardwired in our brains — and, unfortunately, is affecting our decisions.
Now, let’s reflect on how our mind, pre-loaded with risk aversion, affects career decisions.
Here is a list of loss vectors that we associate with different career stages.
- Recent graduates and Young professionals: Loss of high-value skill that you’ll get in a job. Loss of fixed salary. Loss of prestige that comes with a ‘FAANG’ -like-job.
- Professionals: Loss of fixed salary. Loss of flexibility to know more and more about less, and do a repetitive task. Loss of lifestyle.
- Double income professionals (your spouse also works): Loss of a salary that you are used to. Loss of a luxurious lifestyle
Everyone’s situation is unique, and our unique circumstances should inform the weightage of the loss vectors. However, we must curb our tendency towards assigning more weight to losses.
As a primitive man, the quality of risk aversion was a superpower, but in the silicon age, it can be a dead weight. Please don’t make career choices based on animalistic instincts and biases that our ancestors acquired in the stone age. Also, make sure you make decisions based on the symmetric curve, not the asymmetric curve.
May the force be with you!
