You’ve been framed

Imagine this:

You’re a contestant in a new game show.  You’ve already won £1,000 and you have two options. 

A) You can take an additional £500 and walk away. 

 B) You call the toss of a coin.  If you call right you get an extra £1,000, if you are wrong you get nothing extra. 

Make a note of which option you would choose.

Now read the second option.

Again, you’re a contestant in this new game show.  You’ve already won £2,000 and you have two options. 

A) You can lose £500 and walk away. 

B) You call the toss of a coin.  If you call right you lose nothing, if you are wrong you lose £1,000. 

Make a note of which option you prefer this time, before you read on.

If you are like most people (about 70-80%), you will have chosen option A in the first situation (you wanted the certain gain of an extra £500, giving you £1,500 in total) but in the second situation you chose option B (an even chance to lose £1,000 or to lose nothing at all, giving you either £2,000 or £1,000). 

You may have noticed that in both cases, by choosing option A you end up with £1,500 and with option B you end up with either £1,000 or £2,000.  So, logically, you “should” choose either A or B in both situations, depending on whether you would take a gamble or not.

This is an example of the “framing effect”.  If it is framed as a gain, most people want security, they take the certain gain.  If the situation is framed as a loss, most people will take a risk to try to avoid loss. 

Even if we don’t know the precise odds (as we don’t in real life), generally, people are “loss averse”, they don’t want to take a loss and would rather gamble in the hope that they won’t have to. 

Logically, that shouldn’t happen.  But human beings are human, they are not Vulcan’s and they are not logical.  You can try to be something other than human if you want, but it isn’t going to work.  It  works better to learn to deal with the facts, which are that you are almost certainly loss averse and you are probably influenced by framing effects, than it is to try to do something that isn’t possible, to be a Vulcan.

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