Loss aversion is a critical phenomena to understand as a PM. It refers to the psychological bias that we as humans have towards things we currently possess. Many experiments using a diverse array of items have clearly established that “people irrationally overvalue
goods in their possession over those they don’t have by a factor that is very close to three”. As a product manager, this is a very important concept to understand while developing a new product. If a new product I develop, changes a lot of old features or eliminates a lot of old features people like, it will be hard to encourage adoption. Therefore, while developing a product it’s important for me to try to maintain as much of the current features as possible to minimize the impact of this bias. Alternatively, I could also try to make sure the features I’m eliminating aren’t highly valued by the current consumer as well.
For example, if I were developing an update for a new app or product, an important first step would be for me to do a survey or focused testing to understand which features are most important to the users. Once I have identified the critical features, it will be a priority to try to preserve these features and make sure the new features don’t hamper them. If this isn’t possible, I could gear the update or new product to be targeted towards a new market. A new consumer market doesn’t have any prior experience with the product, so they don’t suffer from loss aversion so we can still gain success from the product if we are able to capture a new market. Identifying whether we are targeting the current user segment or trying to capture a new one will be critical to the adoption and success of the new product.
