Explainers

To Manage Uncertainty and Loss, Emphasize the Benefits of Change

Kahneman and Tversky’s prospect theory explains why creating a story of change that details its benefits helps overcome resistance to change

Over the past year, teams have had to cope with unprecedented levels of loss and uncertainty; some industries have changed more this year than in the last 20. As a leader, you recognize that your organization will need to continue to evolve if you’re going to survive—but how can you bring along a team that just wants some semblance of stability and normalcy?

Prospect theory, as defined by psychologists Daniel Kahneman and Amos Tversky, states that people will avoid participating in change for as long as possible—not because they are afraid of what the future holds, but because they don’t want to lose all that they have worked to achieve. The possibility of loss generates this strong sense of resistance because it’s very difficult for our brains to process the uncertainty of a future gain. The upside needs to be 1.5 to 2.5 times greater than the status quo for people to even register an outcome as positive. 

To complicate things further, prospect theory also tells us that humans always have a preference for the certain over the possible—what’s called, not surprisingly, the certainty effect. And in a world filled with uncertainty, it’s easy to see why most team members would happily continue on with the familiarity and dysfunction of yesterday, rather than bet on a wayward future. 

The only way to reverse the certainty effect is to double down on the promise of gains: the change you’re leading needs to forecast, on average, a 100% better outcome than the current state. This is the reflection effect. Once you get people to see the gains as equal to or exceeding the 100% better threshold, they will be able to see the future opportunity as worth participating in, even over the reliable and proven state. 

Now, there’s no way to actually predict the outcomes of a change process, but with intentional planning, well-researched case studies, and meaningful insights and data to point to, you can make a strong case. This brings us to another key tenant of prospect theory: availability of information

When faced with any given choice, we tend to rely not on a complete set of information, but on whatever is available at the forefront of our minds—in other words, whatever we can remember. And the more easily information enters our thoughts, the more likely we are to have confidence in the information. (It’s a trick that marketers have used for decades—those jingles get stuck in your head for a reason.) While we wouldn’t encourage a leader to start drafting up meaningless taglines to sell-in a change process, it is a good idea to ground your team in information that is simple to understand and repeat, and that relates to topics they are already thinking about. As Kahneman put it, “No one ever made a decision because of a number. They need a story.”

When positioning change, it’s also important to consider that not everyone has the same experience of loss aversion. In addition to our psychological wiring, there are two other key factors that contribute to an individual’s relationship to loss: socio-economic status and cultural context. The more money and power you have, the less aversion to loss you have. Inversely, the less power or financial stability you have, the greater your aversion to loss. The traditional hierarchies of a workplace make it easy to see why change may be more digestible for leaders than others across the team.

A study by Mei Wang across groups from 53 countries also found that people from cultures with individualistic norms were more averse to loss than those from collectivist cultures. Those within collectivist societies had the added assurance that they would be supported by their families or communities should they suffer a loss, whereas those from individualistic cultures assumed they would need to navigate the loss on their own. Support systems are critical when navigating any transition.

The next time you’re teeing up any type of organizational change, keep the lessons of prospect theory top of mind: 

  • Make the outcomes of the change clear, and emphasize the positive gains. Remember that the result needs to be 100% better than the status quo if you want people to opt in for the change journey.
  • Share information about the change early and often. The simpler the communications, the easier it will be for people to retain and access the information. 
  • Anchor the change in something your team is already aware of and committed to, like your organization’s purpose or mission. If you can tie it to the organization’s goals and their personal goals, or connect it to the narrative of their own lives. you’ll have an easier time winning them over.
  • Be mindful that leaders, or anyone in a position of power or privilege, will experience loss to a lesser extent than other team members. Create space for people to process the loss they experience when forced to let go of the familiar or certain.
  • Focus on the rhythms and rituals that bolster your team’s sense of psychological safety, connection, and community. Systems of support can make change more tolerable, and less scary. 

Even with these strategies in mind, a sense of loss is unavoidable when navigating change. Rather than ignoring it, try doing an acceptance planning exercise with your team so that you can learn how to honor the past and welcome the future together.

Published March 7, 2021

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