The Pain of Loss Hinders Reform

Human decision-making often suffers from the endowment effect, where the pain of losing something outweighs the pleasure of gaining it. This tendency leads individuals to give more insightful advice to others than to themselves, as emotions can cloud their judgment. In the context of policy-making, agents who make decisions on behalf of the public tend to overlook this emotional aspect, operating under the assumption that loss will not impact them. Consequently, potential losers from reform initiatives are more likely to resist changes, leading to frequent policy failures and underestimated costs due to the need to compensate those who suffer losses. This reveals significant implications for public policy, highlighting the necessity of considering emotional perspectives in decision-making processes.