Prospect Theory and Psychological Safety

Why Silence So Often Wins

When someone chooses not to speak up at work, whether it’s to raise a concern, ask a question, or offer a dissenting view, it’s easy to assume they’ve rationally weighed the pros and cons and decided it’s not worth it. But the truth is, our decisions under uncertainty are rarely rational in the economic sense.

This is where Prospect Theory comes in: a behavioural economic theory developed by Daniel Kahneman and Amos Tversky in 1979. Originally designed to explain why people make weird financial decisions (like playing the lottery but also buying insurance), it’s surprisingly useful for understanding why we keep quiet at work—even when speaking up might help us, our team, and the organisation.

Let’s break it down:

Reference Points: Silence as the Default

Prospect Theory tells us that people evaluate outcomes relative to a reference point, not in absolute terms. In the context of workplace behaviour, that reference point is usually the status quo.

If your team culture is one where nobody questions decisions, where mistakes are swept under the rug, or where feedback is reserved for performance reviews, then not speaking up becomes the baseline. It feels normal. Safe.

And once silence is the reference point, speaking up becomes a loss: a departure from the familiar. Even if it could lead to a better outcome, it’s judged against the comfort of blending in.

“No one else questions this. Why should I?”

Loss Aversion: The Cost of Courage

According to Prospect Theory, losses loom twice as large as equivalent gains. That is, the pain of losing £100 feels roughly twice as bad as the pleasure of gaining £100. This concept, known as loss aversion, helps explain why interpersonal risk-taking is so difficult.

In a low psychological safety environment, speaking up can come with perceived costs:

• Damaging your reputation
• Embarrassment or ridicule
• Being labelled difficult or negative
• Losing trust, influence, or even your job

Even when the potential gains, such as completing a project, preventing a failure, or building trust, are real, they’re not always enough to outweigh the threat of loss.

“If I challenge this plan and I’m wrong, I’ll look stupid. If I’m right, maybe we’ll change course. Is it worth it?”

Usually, no. Losses win.

Diminishing Sensitivity: Why Small Risks Still Feel Big

Another piece of Prospect Theory is diminishing sensitivity. In simple terms, people are more sensitive to changes near their reference point. So, the jump from £0 to £100 feels bigger than the jump from £1,000 to £1,100, even though both are £100.

Applied to psychological safety, this means even small interpersonal risks can feel disproportionately significant, especially when the cultural baseline is silence or fear.

“It’s just a quick question… but I don’t want to look incompetent.”

This is why we see silence even around low-stakes issues. It’s not that people are unwilling to contribute: it’s that the emotional risk feels out of proportion to the expected reward.

Probability Weighting: Imagining the Worst

Humans aren’t great at estimating probabilities. Prospect Theory shows we tend to overweight small probabilities and underweight large ones. This helps explain why people buy lottery tickets and fear plane crashes.

At work, it means we often overestimate the chance of a negative reaction when we speak up, especially if we’ve seen it happen to others (or just heard stories of it happening).

“What if they get angry?”
“What if this makes things worse?”
“What if I lose my job?”

Even if the chances are small, those possibilities loom large in our decision-making. On the flip side, we tend to underestimate the probability that speaking up will lead to praise, appreciation, or positive change. Those feel less certain, even if they’re more likely in reality.

So What Do We Do?

Understanding the decision to stay silent through the lens of Prospect Theory doesn’t mean we excuse it. But it does help us design better environments: ones that make the cost of silence feel higher than the perceived risk of speaking up.

Here’s what that looks like in practice:

1. Shift the Reference Point

Make speaking up the norm. Invite questions. Celebrate candour. Model it yourself. The more normal it feels, the less risky it becomes.

2. Minimise the Perceived Losses

Don’t just avoid punishing people for taking interpersonal risks: make it obvious that those risks are welcome, praised and valued. Be consistent, fair, and transparent in your responses.

3. Make the Gains Tangible

Highlight when speaking up leads to good outcomes. Link feedback to improvements. Share credit. Make the upside visible and real.

4. Challenge the Catastrophic Thinking

Talk openly about the fears people have. Make it clear what will not happen if they speak up. Help people recalibrate their internal probabilities.

Prospect Theory Helps Explain Why Psychological Safety is Hard

This isn’t about theory for theory’s sake. Prospect Theory helps us understand something deeply human:

We’re wired to avoid losses, to fear looking foolish, and to stick with the known, even when the known isn’t working.

Psychological safety isn’t just about creating “nice” workplaces. It’s about creating rational conditions for humans to behave in ways that benefit the system. Because if we don’t design for the way people actually make decisions, we’ll keep getting silence when we need voices, and blame when we need learning.