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Loss Aversion

Did you choose Option A for the dilemma in the last post? When the question was put to a group of doctors, the answers were as follows:

Option A: 72%
Option B: 28%

It seems logical. Save some lives rather than risk the loss of all of them. But then the researchers offered the same doctors this choice:

The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows: If program C is adopted, 400 people will die. If program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability that 600 people will die. Which of the two programs would you favor?

This time the answers were reversed

Option C: 22%
Option D: 78%

This seems crazy. The dilemma is essentially the same - only the wording has been changed. So why the reversal?

The key lies in the direct reference to 'deaths'. Rather than accept limited loss the doctors become willing to risk everything.

Psychologists believe that this indicates what they call 'loss aversion'. Because we hat the idea of losing something we make irrational decisions to protect what we have. For example shareholders will often refuse to sell a falling share because they don't want to accept certain loss.

Perhaps Homer Simpson was speaking for us all when he said, 'It is not okay to lose!

For more on this and other fascinating stuff on how our brains work go to Jonah Lehrer's http://scienceblogs.com/cortex/">The Frontal Cortex
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Doctor's Dilemma

Here’s a dilemma for you from the psychologists, Tversky and Kahneman. They asked the following to a group of doctors

The U.S. is preparing for the outbreak of an unusual Asian disease. It is expected to kill 600 people.

Two alternative programs to combat the disease have been proposed.

If program A is adopted, 200 people will be saved.

If program B is adopted, there is a one third probability that 600 people will be saved and a two-thirds probability that no people will be saved.

Which of the two programs would you favor?


What do you think? I'll post the survey findings later today.
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