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  • Richard Avery

Loss aversion

We make decisions differently when we have something to lose. Loss aversion has been studied and shows that we are motivated more by losing $100 than we are by the prospect of gaining $100. This matters in our food supply system because farmers individually aren’t huge businesses. They are small businesses with an owner with significant skin in the game. These are people who live and breath farming. Many of them have 100% of their assets invested in farming. Other industries aren’t like that.

The CEO of an international airline company owns a lot of shares in that company, but she will have investments elsewhere too. Her performance at work impacts her take home pay and share returns, but it won’t send her broke if she makes some bad calls at work.

This dynamic in farming matters. These are people who will fight hard for their survival. Read that line again. Farmers fight for their livelihood because they have it all to lose.

Virgin Airlines, a company that exists at the time of writing, is one of billionaire Richard Branson’s babies. Let’s say something goes wrong and the business is threatened. Will Richard Branson rally his planes and fly over government house until laws change to ensure his businesses survival? I doubt it. But farmers do this sort of thing all the time.

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© 2020 by Richard Avery.