Prospect Theory and Psychological Safety

Why silence often wins over voice

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 performed the mental cost-benefit calculation (the “affect-laden expectancy-like calculus“) of risk vs reward 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 certain, economically mismatched, financial decisions, it’s surprisingly useful for understanding why we keep quiet at work, even when speaking up might help us, our team, or the organisation.

Prospect Theory contains three main components:

• Loss aversion (we avoid losses more than we strive towards gains)
• Diminishing sensitivity (we focus on immediate interpersonal costs rather than far away benefits)
• Probability weighting (we overestimate the chances of negative outcomes)

Reference Points: silence as the default

Prospect Theory suggests that people evaluate outcomes relative to a reference point or baseline, not in absolute terms. In the context of workplace behaviour, that reference point is the existing status quo. If your team culture is one where nobody questions decisions, where problems are swept under the rug, or where feedback is reserved for annual performance reviews, then not speaking up is the baseline. It feels normal and safe to keep interpersonal risks to a minimum.

And once relative silence is the reference point, speaking up becomes a loss: a departure from the status quo. Even if it could lead to a better outcome, it’s judged against the safety of blending in. We don’t want to be the outlier – the one with our head above the parapet – and we generally prefer to maintain the status quo.

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

Loss Aversion: The cost of courage

According to Prospect Theory, losses loom larger than equivalent gains. That is, the pain of losing £100 feels can feel much worse than the equivalent 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:

• Exposing your “incompetence”
• Damaging your reputation
• Embarrassment or ridicule
• Being labelled difficult or negative
• Losing trust, influence, or even your job
• And many, many more

Even when the potential gains, such as a generating a new product idea, successfully completing a project, preventing a potential accident, or learning from a mistake, are real, they’re not necessarily enough to outweigh the threat of loss. This is also connected to the “endowment effect”, which describes the tendency to value things we already have (like our job) more than we would if we didn’t already have them.

“If I challenge this plan and I’m wrong, I’ll look stupid. Maybe I’ll lose my job. If I’m right, maybe we’ll change the project plan. Is it worth it?”

Often, no, it’s not – at least in our heads. Losses win over gains.

Diminishing Sensitivity: 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 (where we are now) 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. That little risk, when the baseline is silence, feels large.

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

This is why we observe interpersonal 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.

It also speaks to how because the payoffs for speaking up may be high but are in the future, maybe even far in the future – months or years, we focus on those immediate, proximate interpersonal costs that we incur now, rather than the later, far away, benefits.

Probability Weighting: we imagine the worst

Humans aren’t great at estimating probabilities. Prospect Theory (and lots of other psychological evidence too) shows we tend to overweight small probabilities and underweight large ones. This helps explain why people spend a lot of money on lottery tickets with the hope of winning and fear plane crashes (both very low probability), whilst having very little fear of crossing the road (high risk in comparison).

At work, it means we may overestimate the chance of a negative reaction when we speak up, especially if we’ve seen it happen to others (or even just heard stories of it happening). We can escalate the fears in our minds until they seem big and scary.

“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 (as shown in our own research too). Those feel less certain, even if they’re more likely in reality.

How does Prospect Theory help us work on psychological safety?

Understanding the decision to stay silent or mitigate our speech through the lens of Prospect Theory can help us improve the underlying substrate that influences those decisions: how can we reduce the cost of speaking up, and increase the benefit?

Here’s what that looks like through a Prospect Theory lens:

1. Shift the baseline

We want to change the baseline by making “speaking up” (not just verbally) the norm. We invite questions. Celebrate candour. Model vulnerability and create scaffolds and spaces where speaking up is easier. The more normal it feels, the less comparative cost it incurs.

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. Shift from blame towards praise.

3. Make the benefits of speaking up obvious and tangible

Highlight and share examples of when speaking up leads to good outcomes. Link feedback given to improvements made as a result. Share credit and publicly thank people. Make the upside of speaking up visible and real.

4. Challenge catastrophic thinking

Talk openly about the fears people have and acknowledge them with humility – making sure not to make people unnecessarily uncomfortable or fearful in the process. Make it clear what will not happen if they speak up. Help people recalibrate their internal risk calculus.

5. How we frame things matters.

Our decisions are influenced by how options are presented to us. If we frame mistakes and problems as positive opportunities to learn, and as windows into the system, people are more likely to speak up with them.

Prospect theory helps explain why psychological safety is hard!

This isn’t about theory for theory’s sake. Prospect Theory gives us a useful lens on human behaviour: when faced with uncertainty and ambiguity, most of us default to caution. We are wired to avoid losses and to stick with what’s familiar. That helps make sense of why speaking up so often feels risky, and why silence or holding back is such a common response, even when the status quo doesn’t serve us.

Psychological safety is about nurturing the substrate, the conditions in which us humans behave in ways that benefit ourselves, others and the “system”. If we don’t understand the factors that people are weighing up when they decide whether (and how) to speak up, we shouldn’t be surprised when we get silence or heavily mitigated voices at precisely the moments when openness matters most. Prospect theory shows us that the voice calculus tends to shift towards the negative.

Further Reading:

Kahneman, D., 1979. PROSPECT THEORY: AN ANALYSIS OF DECISION UNDER RISK. Econometrica, 47(2), pp.263-291. https://web.mit.edu/curhan/www/docs/Articles/15341_Readings/Behavioral_Decision_Theory/Kahneman_Tversky_1979_Prospect_theory.pdf

Tversky, A. and Kahneman, D., 1992. Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and uncertainty, 5(4), pp.297-323. https://psych.fullerton.edu/mbirnbaum/psych466/articles/Tversky_Kahneman_JRU_92.pdf

Adriaenssen, D.J. and Johannessen, J.A., 2016. Prospect theory as an explanation for resistance to organizational change: Some management implications. Problems and Perspectives in Management, (14, Iss. 2), pp.84-92. https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/7272/PPM_2016_02_Adriaenssen.pdf