Why We Lie to Avoid Losing

 

Takeaway

  • We are more likely to take much greater risks to avoid losing the things we have than we would have taken to get them in the first place

We hate losses about twice as much as we enjoy gains, meaning we are more likely to take much greater risks to avoid losing the things we have than we would have taken to get them in the first place.

These risks often have ethical implications: Someone who inadvertently commits an unethical act may then consciously decide to lie to cover up the mistake. For example, it’s fairly common for companies to unintentionally overstate earnings due to over-optimism. Sometimes this gets them into a situation in which they intentionally mislead investors rather than admit to an embarrassing error. See also: Bernie Madoff.

McCombs Professor Robert Prentice explains how loss aversion influences the business world in a new segment of the video series “Concepts Unwrapped,” a part of the Ethics Unwrapped project.

See video

Mentioned in this Article

Robert Prentice

Professor, Business Law

Robert A. Prentice is chair of the Department of Business, Government and...

About the Author

Rob Heidrick

Writer, McCombs School of Business

Born and raised in Austin, writer Rob Heidrick has spent several years as a contributor and editor at local magazines and community newspapers. He...