Loss Aversion in T&T
On Tuesday in class, we discussed loss aversion - a cognitive bias where the pain of losing is greater than the reward of winning.
One way to think about loss aversion is as it relates to T&T’s economy. T&T’s oil and gas export industry contributes to ~40% of GDP and 80% of exports. Given that T&T is the dominant oil and natural gas producer in the Caribbean, T&T prides itself in being the “real Caribbean,” unlike the other Caribbean countries that rely on the tourism industry. Is it that, possibly, the people of T&T have an unconscious bias of loss aversion to switch from oil and gas to other potential revenue streams for their economy?
Furthermore, T&T’s environment has a significant pollution problem. Part of this could be T&T’s “time preference,” such that the people in T&T do not tend to think inter-generationally or plan for environmental preservation. Therefore, what are ways in which T&T can start thinking about caring about sustainability when their money is made from the exploitation of oil and natural gas? This could be something to explore with the Ministry of Tourism and other government agencies that my group will visit while in T&T.
Ultimately, the question to consider is how do we fight against loss aversion? This is where framing can come into play. When people make particular decisions or take actions that do not seem rationally beneficial, how can we reframe the issues or the situation to encourage better choices that lead to improved economic, political, and cultural paths of a country?
In a laboratory, an experiment is one way to determine relationships of dependent and independent variables. I’m beginning to dissect how decision-making and experimental design can test how different variables can positively influence behavior.
