Fighting 'Loss Aversion'

Obama's Health Care Dilemma: Fear Of Potential Losses Trumps Hope Of Potential Gains

As each day passes, the Obama administration's struggle to pass health care reform seems to grow more challenging. The array of opponents is dazzling - some doctors, drug companies, medical administrators, hospitals, not to mention staunch Republican (and some Democratic) politicians. Yet, President Barack Obama's toughest opponent might be something even more onerous to win over than Mitch McConnell: human nature itself.

In recent years, Nobel prize-winning economists Daniel Kahneman and Amos Tversky (among others) have highlighted a clear pattern in human behavior that they call "loss aversion." They have found that, for people across societies and cultures, potential losses loom much larger than potentially greater gains. Put simply, people hate to lose things much more than they like to gain things; as a result, they value what they have much more highly than what they don't have.

In the health care debate, loss aversion helps to color the public's perception of potential reform. A recent Gallup poll found a clear majority of Americans favor health care reform in the coming year. But when pressed on specific aspects of the health care, Americans are decidedly loss averse. Almost 90 percent of Americans want to be able to choose any doctor or hospital they like, and 77 percent of Americans say it is important to have the option to keep the health insurance plan they have now. In sum, we may want change and reform - but not at the cost of any of our current options.

Politicians opposing health care reform are happy to pick up on the theme. One major Republican health care bill is titled the "Patients' Choice Act." The act promises to use "choice and competition rather than rationing and restrictions to contain costs." By focusing on the losses - those rations and restrictions - that people might incur in a health care reform, Obama foes tap into the loss-averse instincts of the general public.

The president appears to realize this dilemma. In his national address last week, he lamented that the "default position is inertia" and that "doing something always creates some people who are unhappy." The risk for Mr. Obama is that most people will oppose the loss of the status quo, even though reform would greatly benefit society as a whole.

So how does Mr. Obama gain broader public support for health care reform in the face of human nature's basic resistance to change and loss? There are at least three answers to the question.