It is so often the case in life that we have to, time and time again, be rudely awakened with the realization that nothing in life lasts forever. Everything in life is fleeting, everything in life is momentary. What we cherish the most at one point in time may only become an insignificant bygone memory in the next. In the face of such terrifying uncertainty, we thus feel averse and fearful towards change, especially as that change naturally leads to loss, separation and to us saying goodbye. When we say goodbye, we are not only bidding farewell to the people and thing that have taught us love, patience and pain. We are also, at the same time, being faced head-on with the prospect of deep feelings of loss and uncertainty.
Of course, economics may seem to be the last tool in the box that any individual would ever use to describe the feeling of separation and loss. After all, what does a discipline talking mostly about material gain has to do with the deeply human and psychological act of saying goodbye? Yet we must not forget that economics is first and foremost the study of individuals and the choices that they make - and the choices that they make when faced with the possibility of loss and uncertainty are often irrational.
This is where the ideas of behavioral economics come into the fray, in recognizing the quintessential human nature of humans, and in shedding light on the failure of the homo sapiens to live up to the ideals of the homo economicus. We are seldom rational creatures making rational decisions for our own rational self-gain. We are, quite often, mere primitive apes dressed up in elaborate clothing speaking in elaborate languages. In our day-to-day life, we use cognitive biases and mental shortcuts evolutionarily endowed upon us to help us make decisions. This is the aspect of human behavior that behavioral economics tries to explain.
It is also worth noting that while its main domain of study is the irrational behavior of economic actors, the scope of behavioral economics transcends even the world of goods and transactions. It has strong explanatory powers in describing the way we behave in personal relationships - at work, in our family, and in love. This is due to the fact that behavioral economics tap deeply into the universal psychological underworking of the individual. The cognitive biases and mental shortcuts that push us into making subrational economic transactions are also the same cognitive biases that guide us in our perception of our social environment.
Take, for example, the ideas of prospect theory as first theorized by the eminent Nobel Award-winning psychologists Daniel Kahneman and Amos Tversky. Prospect theory states that people value the loss of something as proportionally greater than the gain of something. Standard expected utility theory in mainstream economics, working under the assumption of rationality, would predict that there would be no difference between the two. We would hate the loss and love the gain of something similar equally.
Using the example from the illustration above, the theory predicts that a $100 loss will incur a net negative utility that is equal in absolute value to the net positive utility of a $100 win. Prospect theory comes up instead with a different conclusion, that $100 loss will instead lead to proportionally more negative utility than a $100 gain. This is due to several reasons: Our decision making often begins from a reference point, and the way we measure our loss or gain is derived from that reference point. In other words, we measure our utility in relative terms as opposed to absolute terms. This is further amplified by what is known as the endowment effect, the hypothesis that people ascribe more value to something simply because they currently possess them. This is due to the fact we are hardwired to be loss-averse creatures; In the past, for an organism operating close to the edge of survival, the loss of a day's food could cause death, whereas the gain of an extra day's food would not cause an extra day of life.
How does prospect theory relate to our inability to say goodbye? Prospect theory suggests that we inherently fear the loss of something more than the gain of something similar. The possibility of being divorced from something perceived to be presently "ours" drives us away from better possibilities in the future. In relationships, this makes us inert towards change, preferring to, for example, stay in a toxic relationship or reside in our comfort zones for too long for fear of the unknown, even when the gain of leaving is quite clear
Another relevant concept in economics would be the sunk cost fallacy. Sunk cost fallacy refers to the idea that as we have invested much time, resources, and effort into something, we feel more compelled to continue investing those additional time, resources, and effort. In interpersonal relationships, this would translate to us feeling averse to leaving something, due to the unwillingness of leaving behind all the effort that we have spent in building and contributing into that particular something.
All of these factors combined explain why we are so incapable of saying goodbye, but is there anything that we can do to lessen the pain of farewell? First off, we need to become more aware of the potential payoffs of our decisions: How we think and feel about ourselves, others and the world defines how we think of losses and gains. Becoming aware of our own biases, our own fears, and our own relationship histories is essential to understand the difficulties we may be experiencing today. In prospect theory, this would be the equivalent to truly understanding the loss or gain that we would obtain in the decision we make.
We need to also learn the ability to reframe the situations that we are in. Since we might become more willing to take risks if we frame a situation as a potential loss, we can think of the things we would miss if we don't make a decision. For instance, we can be more likely to take the chance to be vulnerable with others if we understand the risk of not doing it.
In conclusion, while it is true that nothing in life lasts forever, we must not forget that the end of something is never the end of everything. It is often the case that out of the terrible darkness of uncertainty, blooms forth the flowers of opportunity and good luck. In other words, once we find the courage to say goodbye to the past, we will be rewarded instead with the ability to say hello to the future - or maybe for some of us:
Thank you, next.
By Faris Abdurrachman | Staff Divisi Kajian Kanopi 2018 | Ilmu Ekonomi 2017
References
Ivan, Ivan. (2018, December 03). Berpacaran Saat Kuliah, Apakah Bijak Menurut Teori Ekonomi? Retrieved from https://www.kompasiana.com/kanopi_febui
Behavioral Econs 101: The endowment effect and loss aversion Part 1 -- Prospect Theory. (2018, August 02). Retrieved from http://thetroublewitheconomics.com
An Introduction to Behavioral Economics. (n.d.). Retrieved from https://www.behavioraleconomics.com.). Retrieved from https://www.behavioraleconomics.com
Reference dependence. (n.d.). Retrieved from https://www.behavioraleconomics.com
Relationship Endings and Behavioral Economics. (2017, January 23). Retrieved from http://www.santiagodelboy.com
Status quo bias. (n.d.). Retrieved from https://www.behavioraleconomics.com
