Psychological Sourcing: Overcoming Loss Aversion

Stop us if you’ve heard this one before.

You’ve been tasked with filling a software engineering role. The work is hard, but the pay and benefits are great and it’s a surefire stepping stone to a senior position. You scour your passive candidate pipeline and find the perfect individual. They have the ideal skill set and look poised to assume a larger role. You craft a superb cold outreach email outlining why the opportunity is a great fit and hit send. The response? “No thanks.”   

This doesn’t make sense. After all, if the opportunity you’re selling to a passive candidate is legitimately better than what they’re currently doing, they should jump at the chance to learn more, right?

Like most things in life, it isn’t that simple. There are certainly plenty of technical considerations to account for when sourcing candidates, but the greatest barrier sourcers must overcome isn’t technical; it’s mental.

In 1979, psychologists Daniel Kahneman and Amos Tversky teamed up to publish the landmark paper Prospect Theory: An Analysis of Decision Under Risk. Aside from putting the field of behavioral economics on the map and earning Kahneman the 2002 Nobel Memorial Prize in Economics (Tversky died in 1996, and the Nobel is not awarded posthumously), it brought widespread attention to a concept that directly influences the success or failure of every sourcer: loss aversion.

 

Understanding loss aversion

In the simplest terms, loss aversion can be summarized by the idea that losses loom larger than gains. In other words, when humans consider a choice that involves risk — such as leaving one job for another — the perceived impact of potential losses outweighs the perceived value of equivalent potential gains.

In the course of their research, Kahneman and Tversky sought to quantify this imbalance and shed some light on just how loss-averse we really are. They discovered that, when faced with a decision involving risk, humans require potential gains to be twice as valuable as potential losses before we deem the risk worthwhile. They would typically explain the phenomenon with the following scenario:

Participants were posed with a hypothetical coin toss bet. First, they were told that a result of heads meant they would lose $10. Next, they were asked what they would have to win on a result of tails in order to take the risk of flipping the coin.

The result? You guessed it. On average, participants had to be offered a minimum gain of $20, twice the potential loss, before they’d take the theoretical risk.

On the surface, the concept of loss aversion can seem irrational. It challenges earlier theories of human decision making; most notably the belief that humans act as rational agents and always seek to maximize personal gains when making a choice.

But those economic-based models failed to account for the conditions under which the human brain evolved. For most of our existence, humanity has been a species living on the edge. Modern society and its associated safety nets allow us to reach for more than the bare necessities, but that has only recently been the case. 100,000+ years of evolution have conditioned us to accept our current state — imperfect though it may be — because we know it provides what we need to survive. Times have certainly changed (a modern software engineer isn’t living on the edge like our Pleistocene-era ancestors), but Kahneman and Tversky’s research uncovered the extent to which this behavior is hardwired into the human brain, even today.

Unfortunately, we trigger this response every time we reach out to a passive candidate. We’re asking them to walk away from a guaranteed thing (their current job, paycheck, benefits, etc.) and take a chance on a complete unknown. While their current situation may not be completely satisfying, it's reliable and allows the individual to live life on their terms. To make matters worse, we have to find a way to pitch the opportunity in a manner that makes it appear at least twice as valuable as their current position. Barring an unlimited budget, this can seem like an impossible task.

 

Overcoming loss aversion

So now that we understand the problem, what do we do about it? Loss aversion is a challenging mental bias to overcome, but it is by no means insurmountable. A few tweaks to your process, combined with some creative tactics, will greatly improve the odds of passive candidates being receptive to your overtures.

Ditch the hard sell - This one is a given for experienced sourcers, but it bears repeating. Taking a hard-sell angle (“I need an answer immediately!”) is never the right approach. It puts the candidate on the defensive, and without time to establish a relationship with the recruiter and properly vet the opportunity, their mind will naturally perceive your offer as too risky to consider.

Watch for the right signs - Overcoming loss aversion is easier when signals indicate the candidate in question may be ready to make a move. Sometimes, the candidate will be the one sending these signals — updating a LinkedIn profile, uploading a resume to a candidate database or attending networking events. In other instances, sourcers will have to read between the lines. For example, candidates working for companies that have received bad press or that are facing financial hardship could be more receptive to your outreach, as they may no longer perceive their current situation to be as valuable or secure as it once was.

Consider trials and demos - The free trial is a tried-and-true marketing tactic used to overcome loss aversion objections and reframe the conversation. With a try-before-you-buy approach, you aren’t asking the candidate to make a decision. You’re just asking them to take a look. The idea is to help candidates picture themselves as part of the team. Once they’ve made this mental association, they’ll think less about what they’ll lose by walking away from their current job and more about what they’ll lose by refusing your offer. Consider the following ideas:

  • Offer to introduce them to the team - Most organizations are happy to introduce a candidate to the team during the hiring process, but why not make the offer to passive candidates who haven’t yet agreed to an interview? Offer to introduce them to the team they could potentially work with to get a feel for what everyone is about and how they could fit in. This approach requires some internal cooperation but is well worth the extra effort.
  • Show them the work - Great employees are passionate about what they do and they seek out engaging and fulfilling work. The same is true for passive candidates, so give them a sneak peek at the actual projects they could be contributing to if they accept your offer. Walk marketing candidates through an upcoming campaign and show them how they could contribute. Show developers some live code to give them an understanding of your technical philosophy and the products you’re building. Obviously, you don’t want to share anything sensitive, but real examples provide passive candidates with a first-hand look at what they could be a part of.   
  • Let them tag along - Letting passive candidates meet your team is good, but letting them tag along with your team is even better. Letting a candidate shadow your employees for a day or two will literally make them part of your company, if only for a limited time. Once a candidate has had an opportunity to experience life as part of your team, it will be harder for them to say no (assuming you make a good impression).  If you’re up for some logistical juggling, this approach is your best bet.

Thanks to Kahneman and Tversky, we know that simply presenting a candidate with a better opportunity isn’t enough. We have to overcome their inherent aversion to loss, which is no easy task. It took 100,000+ years for this trait to develop, so don’t expect it to disappear overnight. Behavioral economics may not be the first thing that comes to mind when we sit down to source passive candidates, but taking some time to understand what makes the human brain tick will do wonders for your hiring results.