Irrational Loss Aversion
Add to calendarIt is human nature to avoid loss. We make rational decisions to improve our situation and respond to circumstances. But are we always rational? Whether it be the tendency of people to hold stocks that have lost value or teams that continue a death march, this irrational fear of acknowledging a loss can cause people to keep investing in a poor undertaking. This discussion is a brief exploration of how our desire to avoid loss can cause us to irrationally make our situation worse in the hopes of somehow breaking even as well as some techniques to identify and avoid these situations.
This presentation has been developing for some time, and originally started with a blog post I authored on the topic: http://www.bigvisible.com/bbozzuto/irrational-loss-aversion/. The idea is basically that humans do not always act in a rational way, due to a mix of ego and hope we frequently undertake irrational behaviors to avoid realizing a loss. The possible examples of this behavior are legion: speeding to get to an appointment when you are already late, playing “double or nothing” in a gambling game when you are already down, holding on to a stock that is losing value as you hope it will bounce up one time before you get out. These are all relatively common examples of a human trait, rooted in a desire to avoid pain, that ironically increases our losses.
My presentation is an exploration of how this topic manifests itself in IT projects. The most classic example of this would be a waterfall project, which is arguably set up to encourage this dynamic. When working on a large, year-long project, the motivation to smooth over issues or impediments early on can be great. Sadly, we know that these problems will extract a heavy toll on the project eventually, and this frequently leads to the anti-pattern frequently seen in organizations when projects are “green” for 80% of their schedule, and then become flagged as “yellow” or even “red” as they get close to a release and problems come to a head. While a discussion of this dynamic in traditional projects is valuable, the presentation also discusses how these concepts are applied to Agile projects, which are not immune from such behavior.
After going through several situations I have experienced involving loss aversion, the presentation will conclude by enumerating and illustrating several practices that can be used to help illuminate and prevent this dynamic from occurring on people’s projects. Participants should walk away with an understanding of the concept, as well as a few concrete tools they can use to help see this behavior when it is occurring. Thankfully, many times once we see such a behavior, we can self-correct quickly.
- Understand the theory of irrational loss aversion
- Apply the concept to software development projects
- Learn techniques for identifying and addressing loss aversion as it occurs in the work place
