Loss Aversion E-Reminders

Oh yes, brothers and sisters, slowly calm. Welcome to another reminder and today, today we're talking about loss aversion. And as you know, I've been going through some of the cognitive biases that we have as human beings. So just a refresher for those of you who don't know what a cognitive bias is. So a cognitive bias is a particular way in which our brain functions.

Generally a particular way in which human brains function,

that is usually very helpful.

It does that because our brain takes a lot of energy. And our brain has developed shortcuts in order to save energy. But these shortcuts that our brains take,

are not always helpful. Not always, sometimes they cause us to come to the wrong conclusions. And sometimes they can be outright dangerous. And brothers and sisters, you see, this is really part of what being a Muslim is all about. I don't think any one of you who actually takes the time to read the book of Allah and read the Qur'an will fail to see the strong encouragement that Allah subhanaw taala gives us to use our minds and to think thinking deeply about things is an intrinsic fundamental part of what it means to be a Muslim.

It doesn't, it doesn't mean that you need to be a philosopher, it doesn't mean that you need to be,

you know, some academic, not necessarily at all. But you should think deeply about yourself, you should think deeply about the world around you, you should think deeply, especially about what motivates you, and what makes you to do what you do, and what makes you avoid doing certain things. So what makes you do what you do, and what makes you not do what you don't do? Because there's no doubt that being a Muslim, is going to involve doing a whole bunch of things that may not almost definitely will not,

suit your desires, suit, your wins suit your impulses. So this whole thing of impulse control, this whole thing of controlling your impulses, controlling your passions, controlling your desires, controlling your wins, and taking time to pause and plan and think, is a fundamental part of what being a Muslim is all about.

And, you know, we could just repeat ourselves over and over. Because we've mentioned these things so many times. But I'm just telling you why I am spending time looking into these subjects. Now. I think that anybody who thinks deeply about what motivates them, and every Muslim has to do that, is in one way, shape, or form. Gonna start figuring these things out, they're gonna start realizing, you know, what, the way I react the way my brain reacts, the way I react to things is not always helpful. And it's not always the way that things are.

Now, I want today I'm talking, I'm talking about something. Yeah. Which is loss aversion. The aversion to loss, right. So this is my thing, okay.

It means that what does it mean, right? It means that our brains are programmed. And it's very interesting that this has been seen through brain scans. So they've actually seen it, in the sense that certain parts of our brain light up

during certain activities. And so one of the things that they tested to see what parts of our brain light up during certain activities

What is how does our brain react to loss, and three different parts of our brain actually light up when it comes to loss, right. And one is the very, very what they call the, you know, it's it's like the base, the very, very primitive, or what they think is the primitive part of our brain. But it reacts very simply to fear, it creates fear in us, the melodrama that creates that type of, you know, Fear and Desire, and so on and so forth. It's very, very primitive, very, very sort of fight or flight response type thing. And actually, that part of the brain activates when we experience or when we feel we are going to experience some loss. And that makes us makes us anxious. There's

another part of our brain that is involved in

predicting, not predicting, but measuring the outcome of things. And that also lights up when we are confronted with a possibility of loss. So

I can't remember the third part of the brain. But basically, what's what that what sort of neuroscientists and psychologists Morris concluded, is that we are about twice as likely to avoid

loss as we are to go after the equivalent gain. Yeah, so if we have the option, right, put it simply, if you have, if you have 50 pounds, right? If you have 50 pounds, right, you are you are very averse to losing that 50 pounds. Now,

you're twice as averse to losing that 50 pounds, as you are to the possibility of gaining

100 pounds,

or 150 pounds. So the point being is that you are much more reluctant to let go of that money. And that means you're reluctant to take risks. Risk aversion is slightly different from loss aversion, but they're very, very similar, you know, we are averse to taking risks.

And they're very, very similar things that may be barely distinguishable. But loss aversion is I guess, a little bit more specific. And it's certainly applied a lot more in the field of economics, which is something I'm going to talk about, because it's very, very interesting. I think this whole subject is pretty important for us as Muslims. And part of the reason is because a very strong component of being a Muslim is giving charity. In fact, there are many things that we are either requested or required to do as muslims, that may seem to cause some loss. To us, it may seem like that. And we are naturally averse to that. Right? We are naturally averse to giving up our money.

And that's especially the case if we can't perceive any real, immediate tangible gain from that activity. So it's quite a hard thing for us to overcome that aversion to losing as we think of it losing something.

And that it like I said, I mean, they sort of measured it. And it does depend from culture to culture, individual to individual, it depends on it depends upon your own economic circumstances and situations. There are many things that will,

you know, will dictate the level of your aversion, or your dislike of loss.

And by the way, we're not talking about win. I think what's important to mention here is we're not talking about just loss without gain, right? We're talking about loss with the possibility of gain. This is what the subject of loss aversion is, of course, everybody is going to be averse to losing something without getting anything back. Right. I mean, that's obvious, isn't it? But now, what we're talking about here is something that is a little bit irrational, right? It's a little bit irrational. Like why would you be averse to giving up 50 pounds? If you know you're gonna get 100 pounds back. But you know, we just

Don't feel, you know that we want to take that risk. And, you know, it makes a lot of sense. On a very basic level, it makes a lot of sense. And the reason it makes a lot of sense. And this is something interesting that I've also thought about when I looked into this subject, something that I don't, it seems to me that the people who have talked about this particular cognitive bias have not factored this in. But I'm going to talk about the issue of Baraka. Right? But why is it? Why does it make sense? The reason is, because, look, in order to acquire something, some money or some object or some food or whatever it may be, we need to put energy into acquiring that thing. So, energy goes

into us. And it's very interesting, by the way, that the loss aversion is a lot less for things that you don't have an attachment to. So if, for example, if I give you just give you 100 pounds, your readiness to pray the in that 100 pounds with the hope and the expectation of getting seen, you know, 150 pounds is a lot less than if that's your own hard earned money. Now, that's just obvious, right? But why? Why why it's still just the same amount of money, do you get the point? The point is, it's not exactly rational, because 100 pounds is 100 pounds, right? Whether you worked for it, or whether I gave it to you, that's still the same amount of money, it still has the same purchasing

power in theory, right? It's still the same monetary value. So why would you treat that 100 pounds differently depending on whether you worked for it, or whether I gave it to, but we do. Now, there is something I believe here called Baraka. Right? And Baraka is we know it's something in Islam, we understand its blessings from Allah, and the blessings from Allah. And this is something 100% I don't think any psychologist neuroscience scientist has factored this thing in. But Baraka when you work for something, and you do it in a halal way, and you work for something with the sweat of your brow, that thing has about Allah blesses it, Allah gives it some,

it is able to achieve things that an equivalent amount of money that doesn't have Baraka wants. Now, that can happen in many, many different ways.

But even from a psychological basis, that effort that you've put into something makes you appreciate it more and makes you value it more. But there's something else to that as well, the fact that it's Halloween and the fact that it has been and Allah gives it a quality, that you are able you will be satisfied. So food that you buy, with this money

will be much more satisfying, it will fill you it will say to you, it will nourish you more effectively than food that is hot.

This is a whole, this is a whole subject that is beyond

what science has looked into. And it's another factor that we as Muslims need to understand. However, the point of talking about these cognitive biases is that, that we do have to understand that sometimes that leads us to make bad decisions, decisions that are not particularly helpful. And you know, in the it's important to make good financial decisions it of course it is. And this whole aspects of loss aversion can actually sometimes cause us to make bad financial decisions. And this could be the case not just financial decisions, it could be the case within your marriage, within relationships, in respect to your children in respect to your home, in respect to what your work

many, many different things that this whole aspect of loss aversion comes into where it doesn't make any real rational sense. It doesn't make sense at all. Because you know, on the face value, let's take out let's perform

Oh man, forget this issue of burqa, but on the face of that value, 100 pounds is 100 pounds. Why would it matter to you? Why would it matter to you how that 100 pounds comes to you or what the reality of that 100 pounds is? Why would you be more averse twice as much twice as averse to losing that 100 pounds if you can gain, say 200 pounds or 300 pounds, yet we have this intense reluctance, reluctance to part with that money, even when the possibility is really strong, that we could make a lot more.

And obviously, you can understand from the perspective of you as an individual, or as a family, or especially as a society, societies that are extremely loss averse, often are not able to flourish, because this is the reality. The reality of success in a materialistic sense, does depend upon taking certain risks. That's what we do. That's what business is all about. In a sense, business is all about taking these calculated risks. So in order to be a good and effective business person, it is important for you to understand this dimension of loss aversion that you are naturally averse to loss, but I think as well, from a spiritual aspect, because even when it comes to doing good deeds,

you see, this is something that is very interesting. If there is a particular activity that you have been doing for a long time, that is you have become say habitual alized to say, for example, you regularly pray to hedges, or I don't know, whatever, it doesn't matter, but you know, there may be some good deeds that you do regularly.

Again, the whole issue of loss aversion may come in, because you may discover that there is something else that actually gives much more reward than that deed. So the reward of it is much greater. However, the reward is greater, but the efforts that you need to put into it and maybe more,

and the possibility of you suffering some sort of disturbance, some loss of your time, some loss of your money, some loss of your effort, your energy is also more and so unfortunately, these things don't help you to make the right decisions, even in terms of getting rewards from Allah subhanaw taala. An intelligent person would understand a rational person will understand no, this is definitely worth the risk. So I'll give you an example.

Like so what here's a really good example. Let's look at the topic of Dower. Let's look at the topic of inviting people who are not yet Muslim to Islam.

Now, this is something where the possibility of you getting rewards is absolutely boss. Why? Because the Prophet sallallahu alayhi wa sallam said that if just one person accepts Islam, if Allah guides just one person to Islam through you, it is better than all the red camels are in another narration is better than the world and everything it contains. And the reason is because when you If Allah guides a person to Islam through you,

every time that person prays, or fasts or give gives charity, in fact, or does any good deed reads Qur'an, any good deed, you will get the equivalent reward of that person doing that good deed.

And that person doesn't lose their reward at all. You get the equivalent rule. So you can you imagine, right? If, if Allah guides one person to Islam through you, then every good deed they do. It's like having someone just working, they're doing good deeds fee.

But

it's quite a lot of effort involved. If you think about the process that is involved in inviting someone to is, Well, number one, you're going to have to at least spend a little bit of time understanding what is the right way to talk to someone about Islam, how can I invite them to Islam? Number two, you're going to have to invest time and energy into making sure that once they become Muslim, they are going to stay Muslim. Because what's the point if they just take shahada and then they don't pray and they don't fast? From the point of view of you earning agile and reward

words, if they don't continue as a Muslim, it's a, it's an almost futile exercise, it's not really going to benefit you. Okay.

And, obviously, you know, you have to pluck up the courage to talk to someone or to hand them a leaflet, or a booklet, or, you know, there's many different things involved. So there is an investment that you need to make in order to get that return. But the, the the investment is so small, and the return is so great, you must be literally mad not to take advantage of it. But of course, many people want, they would rather, you know, get up in the middle of the night and pray 200, which is great, which is fantastic that it's good that people do that. They may rather fast or sit, sit quietly and read,

or, you know, study knowledge, which is also has huge rewards. So I mean, all of these things have rewards. But what is the reward of those things compared to the reward of inviting or being the means through who some someone becomes Muslim, right. And I'm just giving you one example. You can think of many, many examples like that,

in Islam, but because we are loss averse, we like to keep doing the things that we've already done, we don't really feel that comfortable being challenged with the need to put new energy, new effort, new,

you know, new, whatever it is put more energy into studying something else doing something else learning the ropes of something else, even if the potential and the more risk averse we are, the less likely we are going to be to do those things. But you know, brothers and sisters, I'm sure you can begin to figure out that that's actually really problematic. Like it might be fine, if a few individuals are like that. But what if the whole OMA is like, what if all the Muslims are most of the Muslims are like that? How will the civilization of Islam grow? How will the Nation of Islam grow? How will we improve? How will we prosper? And I don't just mean materialistically. I mean,

spiritually, because you can see that these rules of cognitive dissonance, they apply just as much to our spiritual growth as they do to our materialistic life. Yeah. So one of the ways that we can help deal with this is by first of all, understanding that we are loss averse. And I mean, one of the most obvious ways to deal with it is to think less about the loss and think more about the game. think less about what you're losing. And think more about what is the potential of how your life could improve both materialistically and spiritually by you.

making that commitment taking that risk, because it is it is to do with to some degree risks. Yeah. So that's the first thing you you want to focus more on the gains and focus less on the loss. Another thing that you can do is just just in your mind, you know, go through the worst case scenario, right? Like, okay, even if I did lose this, or even if I didn't use that, How bad would it really be? I mean, because that's the other thing often, we think everything's going to be a lot worse than it is. So this is also another cognitive dissonance, like a pessimist. Pessimism bias, you know, we just, I guess, we take like, we are loss averse, like we are risk averse, we tend to be

a bit pessimistic, and we often think that things are going to be a whole lot worse than they actually are. And you know, the opposite is also true, by the way, sometimes, we completely fail to see the you know, the reality of how bad a situation can be. And you know, this is the human, this is the human brain. But you know, we have to understand what what particular way we need to think in what particular circumstances and that's something we're not always good at. Sometimes we apply a particular way of thinking

In a situation in an environment that is not suitable. And that's, I guess what this is all about brothers and sisters, it's all about just trying to understand how does my brain work, sometimes my brain works in a way that is really helpful. And sometimes my brain works in a way that is not helpful. Or it can be outright and downright dangerous. And we talked about that previously, right? We talked about that, and some of the previous cognitive biases that we discussed. Yeah, confirmation bias, we talked about that, how that can be really, really dangerous. So brothers and sisters.

It's a very, very interesting subject.

I guess I could go into a lot more. But it's really, really simple. It's not really something too complex. It is something again, that we just need to think about, and we need to bear in mind, I'm not encouraging everybody to be,

you know, like, crazy risk takers? No, I'm not encouraging people to do that. Of course, that can be that can be problematic as well. But all I'm saying is that just recognize that it's just, it's something in built into us. We just don't like to use things, which is very sensible. In one way, we've put a lot of energy and we've put a lot of effort into acquiring the things that we've got. But in order to benefit yourself, both from a materialistic perspective, in other words, to get more money from we do need more money, and to be in a more financially stable position. And there's lots of things you can do with money, by the way, apart from just spending it on yourself, money is

really useful to help those other people who are, you know, who are in need, and so on, and so forth. So don't just think of money, you know, to spending mechanism for your own enjoyment. You know, when the Mama needs money, the Dow needs money, and the people of knowledge, need money, the poor, and the needy need support, and the orphans, and so on and so forth. So brothers and sisters, you know, it's great to have that intention to,

to enrich yourself so that you can help others. And this is the reality. Like, there's no doubt that anybody who is successful as an entrepreneur, a successful business person, they are people who have taken risks. And they have understood this issue of what it means to be risk averse. And they have overcome that aversion to risk. There's just no doubt this is the reality.

And yeah, and what they do is that it is they do realize that, yes, they will fail. But how bad is it really going to be? And often you find that entrepreneurs talk about, actually, there are many, many failures, they may be failed 100 times or 1000 times. And of course, we see them as the product of that one time they succeeded, but they don't even look at failures as failures. This is another thing, they look at failures as a learning process. A failure is not really a failure. It's just Well, that's another way not to do it. And they will learn from that and keep going. So this is another thing a lot of a lot of these issues can be dealt with, by thinking about things in a

different way.

Well, maybe that's a whole different subject. And why the Prophet sallallahu alayhi wa sallam encouraged us to be optimistic, you know, as we have the same

in the organization that I work with, one of our part of our code that we're trying to live by is do your best and trust them a lot. And that's all you can do. You can put everything in place you tie your camera, as the saying goes tie your camel and then trust in Allah. So like this not part of Islam to take silly risks without mitigating as much as possible.

And whatever is you know, readily available, right? If Sam does not say you've got a camel soul, okay, just leave it and you know, trust Him I like it'll be there when you come back. know if you've got a rope, you tie your camel, tie it to something tatted up so it doesn't run away and then that, you know, that's what you can do. That's the what you need to do the rest as you trust them a lot. And that's the sort of attitude that we should have for

wasn't sisters. So, think about this in sha Allah, maybe you can just over the next week until next week, just, you know, be aware of this particular aspect. And maybe you can just look in different things in your life. Am I being you know, how is this loss aversion here, right? Is this really logical? Is this behavior really rational?

You know, just think about that, and see the different ways in which that particular way of thinking might be beneficial sometimes, but also, it might be detrimental. Sometimes, at the end of the day, brothers and sisters, like I said, at the beginning, we're just encouraging you and I'm encouraging myself to think about the way you think, think about who you are, think about what's going on in your brain. Understand the way your mind works better, that can only be a good thing for you in the dunya in the Asha. So brothers and sisters, thanks for tuning in. Thanks for listening. Don't forget to subscribe both to the the the my YouTube channel and sha Allah, please subscribe to my YouTube

channel, please like it and share it these little things. It's a little click of a button for you. Especially subscribing. But for me, it's a big thing Alhamdulillah sharing it is caring. You know, who knows who might benefit from it. Also, don't forget to also subscribe to the channel

which is completely gone out of my mind. Or it's called something brilliant. X I can't remember now.

Anyway, the brothers the brothers are organizing this it's there anyway like below share, subscribe. What's it called stream Islam. That's it. Stream Islam. You will get lots of other amazing speakers here on stream Islam as well. Until next time, brothers and sisters thank you for joining me May Allah bless you may Allah bless your week May Allah bless your efforts in the dunya and may Allah give you success in the ephah Allah more severe Allah Mohammed the weather Earlywood sappy Salam. Salam aleikum wa rahmatullah