How has Jeopardy! champion James Holzhauer won 29 straight games (and counting) and accumulated winnings of over $2.2 million?
He's really smart, a fact that often gets ignored. He's mastered the buzzer, a skill requiring excellent timing, since a tech makes the signaling devices live after Alex Trebek finishes his prompt.
But just as important, Holzhauer never falls prey to loss aversion, a common cognitive bias that causes most people to prefer to avoid a loss than acquire an equivalent gain.
Or put more simply, we'd rather avoid losing $100 than make $100.
How much more do we tend to seek to avoid a loss than acquire a gain? Research by Daniel Kahneman, author of the great book Thinking, Fast and Slow, indicates that losses are twice as psychologically powerful as gains. (Which means a bird in the hand really does seem to be worth two in the bush.)
A bias toward loss aversion is understandable. A loss means giving up something I actually have. Not acquiring a gain means giving up something theoretical rather than actual. If I have a chance to make $100 but don't, that sucks... but if I have $100 and lose it, that really sucks.
This is why free trials work so well; after I spend a month watching Netflix for free, I'm much less likely to give it up. In economics-speak, I now value Netflix more because it's become part of my status quo. Canceling my subscription after the free trial makes me feel I've lost something.
Even though I never truly "had" it, because to date I hadn't paid for it.
Ignoring loss avoidance allows Holzhauer to take full advantage of his game strategy.
In the past, most contestants select squares in a top-down fashion, going vertically from easy answers to harder (and more valuable) ones. Not Holzhauer. In the first round, he starts at the bottom and works across, choosing the $1,000 squares and then the $800 squares, so he can build up a bank.
Then he bounces around the board hunting for a Daily Double, and when he finds one, he usually bets his entire bank, so he can double his money.
Following that strategy in the first and second rounds means he rarely has to worry about losing in Final Jeopardy, where he again bets as much as possible while making sure no one can overtake him.
Which means the best way to beat Holzhauer is to stay disciplined and follow the same strategy of making aggressive bets. (Unless, of course, he has a really bad day.) Being aggressive could allow at least one competitor to stay within striking distance for Final Jeopardy, where the outcome would depend on one question rather than an entire game's worth of play.
But most contestants don't bet aggressively. Which is why the result of loss aversion is a typically a default to the status quo.
Say you decide not to attend a networking event because you don't want to give up an hour of your time. Fine: But what if you might have met the perfect partner for a joint venture? Or say you decide you don't want to invest $20,000 in your business because you hate the thought of losing it. Fine: But what if you might have created a product line that would open up a great new revenue stream?
The key to not falling prey to loss aversion is to properly value the potential loss. Often what we may lose isn't as valuable as we might think.
Holzhauer clearly sees himself as playing with house money; while he may have $20,000 in his pot during the game, he's more concerned with amassing more than he is with losing what he has. To him, the money is just a number.
And his only goal is to maximize that number.
Which means staying consistently hyper-aggressive. That way he makes as much money as possible in each game, which means he also has the best chance of returning for another game, so he can keep the cycle going.
Maximizing the outcome of this game means he gets to get up and do it again.
And so can you.
The next time you're more worried about losing what you have than you are excited about what you could gain, take a step back. Think about your long-term goals. Consider the real risk of losing what you have. Then consider the real value of what you could have.
You may decide to take the risk. Or you may not.
But at least you will have made a decision based on data, and logic, and reasoning -- not because of a common cognitive bias.
And don't forget one simple fact. You can get over almost any loss, but someday, when you look back... will you get over not having done everything possible to achieve your dreams?