Human Nature Is Loss Averse

Why don’t companies encourage fines and instead use bonus deductions to manage performance? Because fines are too damaging.

If you fine someone 50 yuan, you might later need to spend 500 yuan just to make up for the motivation they lost.

If finding 10,000 yuan by luck would make you happy for a week, then losing 10,000 yuan could make you miserable for more than a month. During periods of losses, it becomes hard to hold on—it’s simply too painful. And that painful memory is exactly why, during profitable times, people can’t stay the course. Fear takes over; they’re terrified of returning to the loss phase, to the sleepless nights.

Human nature’s aversion to loss far outweighs the desire for gains of the same magnitude.