Post by rkipp on Apr 25, 2016 4:28:41 GMT
The article, "Prospect Theory: An Analysis of Decision under Risk," goes into depth regarding people's preference for certainty, even if it means sacrificing larger rewards. The theory is illustrated with non-monetary outcomes, as well as monetary outcomes as seen with the below examples.
Non-monetary example:
A: 50% chance to win a three-week tour of England, France, and Italy; 22% of people picked this
B: A one-week tour of England, with certainty; 78% of people picked this
Monetary example:
A: 2,500 with probability of .33
2,400 with probability of .66
0 with probability of .01 18% picked A
B: 2,400 with certainty 82% picked B
As one can see, people prefer to have outcomes with certainty. To further the idea of prospect theory, an article online discussed how we are not rational deciders as seen through the below reasons related to prospect theory.
- We think in terms of gains and losses with respect to our perceived and expected status quo.
- We fear losses more than we like gains.
- We distort probability according to how a prospect is framed (in terms of gains and losses).
- Our choices are highly dependant on how scenarios are framed.
- We overvalue probability (risk) when thinking in terms of loss (risk seeking).
- We undervalue probability when thinking in terms of gains (risk averse).
sites.google.com/site/skepticalmedicine//poor-decisions-and-prospect-theory
So, my question is, is this preference towards certainty necessarily a bad thing, or can it possibly help certain people? Also, can you think of experiences where you chose certainty over a possible larger outcome (or perhaps you took the risk) and what was your reasoning for choosing what you did?
Non-monetary example:
A: 50% chance to win a three-week tour of England, France, and Italy; 22% of people picked this
B: A one-week tour of England, with certainty; 78% of people picked this
Monetary example:
A: 2,500 with probability of .33
2,400 with probability of .66
0 with probability of .01 18% picked A
B: 2,400 with certainty 82% picked B
As one can see, people prefer to have outcomes with certainty. To further the idea of prospect theory, an article online discussed how we are not rational deciders as seen through the below reasons related to prospect theory.
- We think in terms of gains and losses with respect to our perceived and expected status quo.
- We fear losses more than we like gains.
- We distort probability according to how a prospect is framed (in terms of gains and losses).
- Our choices are highly dependant on how scenarios are framed.
- We overvalue probability (risk) when thinking in terms of loss (risk seeking).
- We undervalue probability when thinking in terms of gains (risk averse).
sites.google.com/site/skepticalmedicine//poor-decisions-and-prospect-theory
So, my question is, is this preference towards certainty necessarily a bad thing, or can it possibly help certain people? Also, can you think of experiences where you chose certainty over a possible larger outcome (or perhaps you took the risk) and what was your reasoning for choosing what you did?
