Why Apple won and Kodak lost

You know what most humans don't appreciate enough is how impactful the idea of loss aversion is.

Most human beings would rather not lose $10 than gain $10.

We like holding on to what we have.

And loss aversion, it's driven by fear.

It makes us really, it makes us, it makes it very difficult for us to actually make real logical decisions.

Because quite simply, a gain in X and a loss in X is not the same thing to human brains.

And that makes a lot of financial decision making a complete hodgepodge.

Psychologically, human beings don't like being deprived of anything and will react pretty badly and will do anything to avoid the pain of deprivation.

This is actually the technical definition of loss aversion.

This cognitive bias becomes really powerful the bigger your investment is.

And it screws up with your emotions, time, safety, everything.

So one way Avalon actually uses loss aversion is we try to make our customers make impulse buys, right? So we'll say something on the, along the lines of, oh, you're going to lose this in the next two or three days if you don't make this decision right now.

Customers don't like losing out on things.

They will do anything to avoid that pain, right? So that's one way we use loss aversion.

But on the other hand, one thing that affects us is the, is the sunk cost fallacy, right? Which is kind of an extension of loss aversion.

So businesses that already have some bank built up, already have some reputation built up, just completely stop adapting, innovating or pivoting, right? And this is out of a fear of change.

I already have all of this stored up.

I don't want to lose it.

Even if I can gain twice as much as this, I don't want to lose this, right? So that, I mean, companies like Kodak and Toys R Us, they've, they've suffered from this, right? And in fact, one of the reasons I feel like Apple has done really well is because they somehow as a team, they, they managed to avoid loss aversion, right? They keep innovating with the iPad and the iPhone.

So they're in tune with what society needs and are willing to gamble what they already have in order to make those new things successful.

In fact, the iMac is now the least successful line of products that they have.

But you know, ten, 15 years ago, that's not what they thought.

And they gambled that on what they were building in the future.

A lot of armies or lieutenants will, you know, once they've already committed to a fight, they will continue fighting because they don't want to lose face that they've already kind of, uh, put on the line.

One really, really interesting thing or a way to actually combat loss aversion is to just act like you don't own anything, is to just act like you have nothing to lose.