People feel change from a reference point, not just the outcome
“The carriers of utility are gains and losses—changes of wealth rather than states of wealth.”
Source & reference
At a glance
- The same outcome can feel different depending on where someone begins. A price of 100,000 won alone does not explain a customer’s response.
- The previous price, expected level, and current way of doing things become reference points that turn the outcome into a gain or a loss. Sound judgment and responsible marketing do not describe only the final result.
- They first ask what the other person treats as normal and what change they believe they will gain or lose.
Today’s reflection
Psychologist Daniel Kahneman developed prospect theory with Amos Tversky to explain real choices that expected utility theory could not fully describe. In his 2002 Nobel Prize lecture, Kahneman explains that people respond to gains and losses measured from a reference point rather than only to an absolute final state of wealth. The value function is generally steeper for losses than for gains of the same size. Prospect theory, however, is not a rule that every person always behaves identically. It is a descriptive model of recurring patterns in choices under risk. A reference point may also shift with the status quo, expectations, goals, or comparisons. Today’s English sentence is a direct quotation from the lecture; the Korean is a natural translation.
- Find the reference point before explaining the benefit. Unless we know what the other person considers normal and what expectation they are comparing against, our promised gain may look like the cost of change.
- People can be more sensitive to losing what is familiar than to gaining an equivalent benefit. Change needs more than a list of advantages; it needs a transition design that protects time, relationships, learning effort, and a sense of control.
- Framing changes perception, but it does not change the underlying facts. Ethical marketing does not select only the most favorable baseline; it places benefits, costs, limits, and alternatives on the same decision surface.
When presenting a new product, organizational change, or price, the provider usually emphasizes the better outcome. The other person may instead experience the choice as a loss of a familiar method, authority, time, or safety. Unless this gap is understood, adding more benefits or stronger persuasion may not reduce resistance. Exaggerating the fear of loss can improve short-term conversion but damage trust. Responsible design makes the real trade-offs visible and offers evidence, support, and choice that reduce the cost of transition.
Practice for today
Choose one proposal or request you need to make today and conduct a four-line reference-point review.
- what does the other person currently regard as normal?
- what real change will the proposal create?
- what time, money, authority, or familiarity might they feel they are losing?
- what evidence, support, trial period, or exit option could reduce that loss?
Then rewrite the proposal: ‘Move from the current ___ to gain ___, while protecting ___ through ___.’
Question for today
Am I describing only a good outcome, or do I also understand what the other person experiences this choice as losing?
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