Employee wellness: How to use ‘loss aversion’ to improve outcomes
  • leadership
  • Blog post

Employee wellness: How to use ‘loss aversion’ to improve outcomes

When it comes to encouraging your employees to participate wholeheartedly in wellness programs such as weight loss, should you use carrots or sticks? In other words, should you lean more on positive financial incentives, like bonuses or gift cards? Or should you threaten losses, like higher health insurance premiums for non-compliers?

Well, as it turns out, the best way to get employees on board is a positive incentive coupled with a negative one. At least that’s what a study from an authoritative research institute at the University of Pennsylvania says.

The researchers, from the school’s Center for Health Incentives and Behavioral Economics, wanted to find out whether the psychological concept known as “loss aversion” could help motivate people to lose weight.

A deep-seated fear
Loss aversion is the deep-seated fear, ingrained in human beings over millennia, of having something necessary to survival taken away, ranging from food, water and shelter up to life itself. The effects in other domains have been extensively studied, and the Penn researchers wanted to see if loss aversion would work in the wellness arena.

Boy, did it. And here’s how the researchers set up their experiment proving it.

Some 281 Penn employees who signed up for the study, which targeted overweight and obese adults, were given a goal of taking 7,000 steps per day for 13 weeks. (That’s well above the U.S. average of 5,000/day.) Everyone received daily feedback through a smartphone app. Additionally, the participants were divided into four groups, three of which received incentives to achieve the goal. The fourth group, the control, did not.

The incentives, by group, were:

  • A payment of $1.40 to those who achieved their goal for the day
  • A “lottery ticket” that gave those achieving their daily goal a chance to win $50
  • A lump sum payment of $42 to each person, with $1.40 deducted for each day they did NOT achieve their goal


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Hanging on to whatchu got
As attractive as the $1.40 payment may seem to you, reader, it’s not the incentive that worked best. And as much as people like to play lotteries — Powerball, anyone? — that one didn’t work best, either.

No, the winner in terms of results was the loss-aversion approach that mixed positive reinforcement — here’s $42 — with negative reinforcement — we’re taking it away a little at a time if you don’t comply.

In fact, almost half of the participants achieved the steps goal in almost half of the days, for a total of 45% of participant/days. The $1.40/day payment and the lottery tallied 35% and 36% of participant/days, respectively.

Now, it’s true that all of the incentives worked better than no incentive — the control group met its steps goal on 30% of participant/days. But the loss-aversion approach clearly outperformed the rest.

One little thing…
There’s one problem with all of these approaches, however, and it emerged when the research team followed up with all 281 participants for a further 13 weeks. For that period, the incentives were scrapped while everybody continued to receive smartphone feedback on their progress.

And what happened? Those who previously had been given incentives fell back in their daily step count to more or less the same level as the control group.

But remember, that control group DID do better than the general population. Almost one-third of those folks’ participant/days achieved 7,000 steps, which is 40% above the national average.

The takeaway
So for those of you who are interested in wellness incentives where the effects can be measured, like weight loss or smoking reduction/cessation, we can draw the following conclusions:

    • 1) If you’re going to give out financial incentives, you have to keep giving them. Although the researchers didn’t say this, it’s a fact that extrinsic motivators like financial reward tend to have limited effective lifespans.

2) The best incentive, should you decide to use one, involves the fear of losing something. You may not want to use the technique the Penn researchers did — it’s pretty tough for an employer to give out money and then take it away — but you can still structure your incentives in terms of loss language. Example: “You lose the best health insurance rate if you don’t complete certain wellness goals.”

3) Consistent, personal feedback without any incentive does have an effect. It may not be as pronounced as what financial incentives provide, but it’s there, and it’s real.

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