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Whether people are gambling, haggling, or just doing their best to save lives out there, losing is tough to deal with.

Hosted by: Hank Green
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Sources:
https://www.princeton.edu/~kahneman/docs/Publications/prospect_theory.pdf
http://www.jstor.org/stable/pdf/2937761.pdf
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2631940/
http://www.pnas.org/content/107/8/3788.full
http://www.sciencedirect.com/science/article/pii/S1364661315000789
Thinking, Fast and Slow by Daniel Kahneman
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Have you ever heard those ads from mattress companies that offer to refund your money if you don't like your bed, even after you've slept on it for a few months?

Seems like kind of a bad deal for the mattress company, right? All those extra shipping costs and mangy used mattresses?

What are they gonna do with those? It's gross. Well, the thing is: mattress companies know a little something about how humans think.

Once you get a mattress into your home and feel like you own it, it's harder to get rid of. People often shift their preferences in irrational ways like this, which can be explained by prospect theory— “prospect,” here, meaning a future event that's uncertain. The try-it-at-home mattress strategy is a part of prospect theory called the endowment effect.

The idea here is that if you're endowed with—or just given—something, you usually want to keep it. For instance, in one set of experiments, people were asked how much they would be willing to pay to buy a coffee mug. Other people were just given the mug and asked how much money they would sell it for.

The sellers wanted around three to four dollars more than the buyers wanted to pay— and it wasn't like they needed a mug more. The options are basically the same: mug or money. But the amount of money that it takes to feel like an even trade shifts, depending on what you have to start.

Just feeling like an object is yours seems to make you value it more, even though there’s no rational reason why it would be worth more. Beyond buying mugs and mattresses, prospect theory can also explain some irrational decisions where stakes are much higher— so-called risky choices. Like, imagine that 600 people are at risk of dying from a dangerous disease and you are in charge.

Have fun! Your science advisors propose two plans:. Plan A will certainly save 200 lives.

Plan B has a one-third chance of saving everybody, and a two-thirds chance of saving nobody. If you had to face this choice multiple times, you might get stuck trying to calculate the best option. If you pick Plan A three times, you’ll save 600 people.

And if you pick Plan B three times, chances are, you’ll also save 600 people with one success and two failures. This is called the equal expected value. But this one time, you only get one decision.

So which do you choose: the certain choice, or the risky choice? In lots of studies that present people with a problem worded like this—with saving lives— most people tend to pick the sure thing: Plan A. Now, let’s say you flip the way you describe the plans so you’re talking about the lives lost instead of the lives saved.

Plan A will certainly lose 400 lives, and Plan B has a one-third chance of losing nobody, and a two-thirds chance of losing everybody. In this case, people prefer Plan B, the risky choice, even though it's the exact same decision. This is called the risky choice framing effect, because the framing of these problems affects what you decide.

And one contributing factor is called loss aversion. It’s the idea that, psychologically, we're disproportionately averse to losing things— even when it’s not logical. We make choices as though losing something feels worse than getting that thing feels good.

Like, imagine I offer to flip a coin to decide whether you win $150, or have to pay me $100. I’m not gonna do that, it would be a bad deal for me. But would you take that bet?

Because lots of people don't, even though there’s more potential gain than potential loss. Loss aversion might influence the endowment effect, and likely affects people’s reasoning in that disease dilemma, too. When a risky choice is framed as saving lives, it looks like a choice between a sure win of saving lives and a gamble.

The gamble looks worse because it points out people who might die. When things are framed as losing lives, it looks like a choice between surely killing people and gambling to save some. The gamble points out people who might live.

Put it this way, and the choice that’s framed as saving lives feels better! A supposedly superficial wording change makes people more likely to make a riskier choice, even though the plans in both scenarios are mathematically identical. All because we seem to really hate losing.

There's some evidence that this framing effect is related to a brain region called the amygdala, which is usually active when you have an heightened emotional reaction. A 2010 fMRI study suggests that amygdala activity is related to people’s choices in both frames: picking the safe options for gains, and the risky options for losses. So for something like the disease problem, it's as though the amygdala reacts to the emotional gut-punch of that potential loss and death.

So you’re driven to whatever’s framed more positively, even though it’s not a logical choice. Basically, humans aren't robots! Our decisions are influenced by feelings and not just math.

But knowing about prospect theory might let you act a little more rationally. So if that mattress you’re trying out sucks, return it. Don’t get too attached!

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