Loss Aversion: A Psychological Marketing Guide

by Josh Barney

How much would I have to pay you to take part in the following test?

Imagine if I said that every time I flipped a coin and it landed on heads, you’d have to pay me £100. However, if the coin landed on tails, I’d have to pay you whatever you wanted.

The outcome is completely 50/50. There’s half a chance that you lose £100, and half a chance that you gain whatever figure you demand to play the game.

What’s the least I’d have to pay you when the coin landed on tails for you to take part in my game?

BTW: Whatever you answer, it won’t make any difference to the amount you’d have to pay me if it landed on heads (£100)

loss aversion coin flip

Got a figure in mind?

If you said £100 (which was the amount you would’ve gained) then you are very much in the minority.

In fact, on average, people value things that they could lose (like their own money) as TWICE as valuable as something they could gain (my money).

So those of you who said £200, were bang on average.

But when you think about this logically, it really doesn’t make any sense. You have a 50/50 chance of winning or losing, so why should you have to earn twice as much as you could potentially lose?

(We’re all friends here after all).

The answer is a psychological effect known as loss aversion.

And when you understand how to harness it (particularly in the wording of your offers and advertising) you can double the effectiveness of your marketing campaigns and increase conversion rates.

What is Loss Aversion?

Loss aversion explains why the pain of losing is twice as powerful as the pleasure of gaining.

If people were as rational and logically as we think we are, we’d value the potential to gain £100 at the same as the potential to lose £100.

But we don’t.

We value what we could lose as double!

Loss aversion studies prove that we value what we could lose double of what we could gain.

In a situation like the coin toss (mentioned at the start of this article) there is a certain degree of risk involved- if you’d lost, you would’ve had to pay me.

And those of you who are dubious about loss aversion, shouldn’t feel like they’re alone because of the ‘risk’ factor.

But what happens when you remove the risk (just like the prospective customers of your business), do the effects of loss aversion still occur?

A Loss Aversion Study

In 1990, a study undertaken by Kahneman, Knetsch and Thaler set out to discover how loss aversion affects the psyche in situations without risk.

The study’s participants were randomly assigned to be one of the following:

  1. Seller
  2. Buyer
  3. Chooser

Sellers were given a mug and buyers were given money (we’ll get to the role of the ‘choosers’ in a minute).

Sellers were asked to price their mugs at the lowest possible amount they’d be willing to accept for it. And buyers were asked to price the sellers’ mugs at the highest possible price they’d pay for it.

loss aversion marketing study

Sellers valued their mugs at an average of $7.12, but buyers were not willing to spend more than $2.87 on the sellers’ mugs.

The study’s researchers concluded that the sellers, who already had the mugs, evaluated the mug as a loss and therefore valued them much higher, but the buyers valued the mug as a gain and for this reason, valued it at less than half of the sellers.

And to identify the true value of the mugs, the researchers asked the third group of participants- the choosers- to make a choice of either keeping the money or the mugs.

The choosers decided that they would keep the mugs, unless they were offered $3.12 or more.

This figure gave the researchers a true and unbiased value ($3.12), proving that the buyers had more-or-less accurately judged the value of the mug.

But the sellers had valued it a massive $4 more. That’s 128% higher than the mug’s true value (according to ‘the choosers’).

  • Buyers priced the mugs at 25 cents less than the true value (which is more or less perfect)
  • Sellers priced the same mugs at $4 more than their true value (more than double!)

And if this doesn’t convince you that loss aversion has a real psychological influence, think back to when you’ve sold something that you owned. How many times did you have to negotiate and lower the price before anybody bought it?

overpriced selling items

Loss Aversion Marketing: How Can You Use It?

There are a number of different ways to use loss aversion in your marketing campaigns and I’ll explain these in more detail, but before we get into that, the most important thing you need to understand is how to use loss aversion language.

BTW: Check out our Complete Guide to Facebook Ad Creatives and Copy for more marketing design and language strategies.

Loss Aversion Marketing Language

If people price things they already have at 2x the value of something they stand to gain, you must adjust the framing of your offers to target this.

This means that you need to stop telling your prospects how amazing their lives would be if they bought your product, and instead either:

  1. Tell them all the things they’re missing out on because they don’t own it, use ‘you’ or ‘your’ often. For example: change from typical ‘gain’ sales language: e.g. ‘Get more sales and leads with loss aversion tactics’, to Loss aversion language: e.g. ‘You’re losing half your leads and sales without loss aversion’.

lose aversion language copy

  1. Use language to make prospects feel like they already own your product. For example, use words like imagine, visualise, picture and envision: Imagine your margins when loss aversion takes effect on your sales.

Where To Use Loss Aversion Language

Loss aversion language can have amazing effects on your marketing and advertising performance, here are a few places that I’d recommend analysing and adjusting your language accordingly:

BTW: You should run split-tests on your copy. Try testing loss aversion language against standard benefit-based copy.

  • Social media ads: Use loss aversion language to make your audience feel like the product/service is already theirs
  • Order/payment pages: A lot of people abandon their cart when they reach the payment page. Use loss aversion language to imply that the product already belongs to them and encourage them to take the final step, e.g. Congratulations, your (product/service) is reserved. Don’t lose it now!
  • Cart abandon emails: Instead of reminding your prospects to complete their purchase, tell them that they’ve lost something that was already theirs.
  • Lead generation campaigns: If you’re running pop-ups or ads to generate more leads for your business, use loss aversion to tell prospects what they’re losing by not signing up to your company.

loss aversion email copy

Free Trial/Sample

The best way for you to make a prospect feel like they already own your product, is to give it to them on a free trial.

Giving away a service, tool or SAAS product on a free trial (for a limited period) is a great way for a prospect to experience the product for themselves, but more than that…

…when the free trial expires, they often feel like they have invested something into the product and personalised it to their preferences, and this gives them the feeling that they already own it.

amazon free trial

If you couple this with loss aversion language when the trail ends and frame the situation like the product was theirs, but is now being taken away, you will increase the perceived value of your product and boost your trial to customer conversions.

Those businesses who are selling a physical or information product should give prospects a free sample, so the product becomes the prospect’s, even if it is just a taster.

Videos of Product/Services in Action

People naturally project themselves onto others that they relate to. This also happens in videos.

A video showing your product being used by somebody similar to the demographics of your target market, will make the product/service feel a lot closer to your prospect.

This type of marketing video also demonstrates what a prospect doesn’t have, highlighting a fundamental part of loss aversion- ownership.


Loss aversion can have a massive impact on the success of your marketing campaigns when used correctly.

People value things that they own at twice the value of those they could gain. This startling difference in value should direct your use of language, copy and marketing tactics.

How can you imply that a prospect already has some sort of ownership over your product or service?

Test loss aversion in your marketing materials and see the impact yourself.

If you enjoyed this article, check out these top super-relevant guides:

Josh is the Founder of We Imagine Media, an award-winning content marketer, best selling author and creator of the www.joshbarney.blog. He creates and strategises content, sharing the most successful tactics with his lovely audience. He hates writing in the third person, follow him on the social links so he can get back to writing as himself.

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