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(Ars Technica)   People don't see loss and risk as purely rational agents. Losses weigh more than gains. The difference between 1 and 2% feels bigger than between 50 and 51%. Ergo this going red will hurt more than it going green. Welcome to fark   (arstechnica.com) divider line
    More: Interesting, Prospect theory, Daniel Kahneman, Amos Tversky, Replication, original results, Research, results of Kahneman, Loss aversion  
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424 clicks; posted to Geek » on 22 May 2020 at 9:32 AM (3 days ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook



17 Comments     (+0 »)
 
View Voting Results: Smartest and Funniest
 
3 days ago  
That was interesting. Now, is that comment?
a) smart
b) funny
 
3 days ago  
Um, yeah, we've known this for a while.
 
3 days ago  
"We feel like the difference between 1 percent and 2 percent is bigger than the difference between 50 percent and 51 percent. This observation of our irrationality is one of the most influential concepts in behavioral science..."

Well, according to the math they taught when I was in school.

An increase from 1 to 2 is a 100% increase.

An Increase from 51 to 52 is a 1.96% increase.

Yeah, I know....
 
3 days ago  
"People don't approach things like loss and risk as purely rational agents. We weigh losses more heavily than gains. We feel like the difference between 1 percent and 2 percent is bigger than the difference between 50 percent and 51 percent. "

That statement, devoid of any really context in the article, is very strange. Depending what we are talking about there is a really farking big difference between these two. An event occurring with a 2% probability is a 2 fold increase in likelihood as compared to an event with a 1% probability, but a 50% to 51% increase is only a 1.02 fold increase.

Also, this is even more clear if you consider the move from 0% to 1% likelihood or 99% to 100%.
 
3 days ago  
Context matters with the percentage example. If you are concerned about the rate of growth, then going from 1% to 2% is a 100% increase, whereas 50% to 51% is a much lower rate of increase. This makes a big difference if you are trying to extrapolate the growth of those numbers.

For example, if you were looking at how quickly a virus was growing in a population by looking at the percentage of people infected. Seeing a weekly increase of 1% to 2% is much more worrisome than going from 50% to 51% because the growth curve is much steeper in the case of the former.
 
3 days ago  
Apparently I'm not the only one that thought that had issues with that statement.
 
3 days ago  
Yea, I've been trained in doing risk assessments and learned it's a learned skill, because humans are terrible at assessing risk.

Especially Americans.
 
3 days ago  
That explains all of my losses on SPY puts.
 
3 days ago  
Sunk costs fallacy, something something.

So they have this interesting idea about how we respond to outside wealth, revealing that we never appreciate what we have and thus, can never get enough.
Instead of using this to talk about how we could use this tendency to work for us, instead of always using it negatively and excusing our selfishness, lets farking forget all the societal and environmental implications of that, and talk about MONEY instead.  How do we feel about MONEY?

Because social psychology isn't a real science, doesn't make real money, and doesn't really matter.  Building a safe, secure world for most  is just an idea  that won't attract investment, so it only matters in some fuzzy-wuzzy emotionally weak world that thinks we should learn to share.

Those ideas are only important when we apply them to economics, and then use them to make MONEY.

Because thats the important thing.
 
3 days ago  
I've also always taken issue with the view that people treating losses and gains differently is irrational.

The premise behind the conclusions is that the only rational choice is to maximize your expected gains, and minimize your expected losses. This is a utility function that is only rational in a vacuum, or if you already have so much money that the sums considered are essentially rounding errors in your finances.

If an unexpected loss of $1000 dollars means that I will be evicted, have my kneecaps broken, etc. Given a choice between a 50% chance of losing $10,000 or a guaranteed loss of $2,000. I'm probably going to gamble, because ultimately the result of either loss as pretty much the same, and in one case I have at least a 50% chance of getting out of it.

Likewise, if my car needs urgent repairs that cost $1000, or I'm short on rent, as much as $10,000 would be nice, the optimal choice is now the short term consideration of getting the secure $2,000.

There is no way that study participants aren't considering their personal lives when answering these questions. Maximizing expected value is a luxury that only those with all their immediate needs met can afford.
 
3 days ago  
2% to 1% is only the same as 51% to 50% in a reality where busting cannot occur.

This is the kind of simplistic assumption that would result in a conclusion that the house does not have an advantage in an equal-odds game.

This conclusion is contradicted by observed reality, and indicates the model is faulty, rather than reality.

Basically, 2% to 1% brings you 50% closer to busting out, which is a major problem.
 
3 days ago  
What's preferable, things being a little bad and getting much worse, or things being really bad and getting a little worse?
 
3 days ago  
Uhh.. I can guarantee you that I would be much happier about winning $100 than I would be sad about not winning $100. Similarly, I would be much more sad about losing $100 that I expected to have than I would be happy about getting $100 that I didn't expect. I am continually amazed at people seem to know the price of everything while not knowing the cost of anything.
 
3 days ago  

Hachitori: "We feel like the difference between 1 percent and 2 percent is bigger than the difference between 50 percent and 51 percent. This observation of our irrationality is one of the most influential concepts in behavioral science..."

Well, according to the math they taught when I was in school.

An increase from 1 to 2 is a 100% increase.

An Increase from 51 to 52 is a 1.96% increase.

Yeah, I know....


Probably have told this here before, but it puts me in mind of the birthday example:

If I am 1 year old on the day you are born, then when I turn 2, you will turn 1. You are 50% of my age.
When I turn 100, you will turn 99 - 99% of my age. Assuming indefinite lifespan, at some point you'd actually catch up. Right?

/right?
//two thirds of
///three slashies
 
3 days ago  

Hachitori: "We feel like the difference between 1 percent and 2 percent is bigger than the difference between 50 percent and 51 percent. This observation of our irrationality is one of the most influential concepts in behavioral science..."

Well, according to the math they taught when I was in school.

An increase from 1 to 2 is a 100% increase.

An Increase from 51 to 52 is a 1.96% increase.

Yeah, I know....


My guess is that it isn't about the percentages, but about certainty. During our millions of years of evolution, having one item of food, and getting a second one was a big deal. Having just the one provides little long term certainty. If I have 50, I am as certain as I could be about my food for the foreseeable future.

This works with threat as well. If I'm being assailed by 1 predator, I might have a chance to deal with it and get away. If another shows up, my chances for survival drop considerably. If there were already 50, who cares about that 1 more?

In just about any situation I can imagine going from 1 to 2 has more utility than going from 50 to 51.
 
2 days ago  

denverstevens: Hachitori: "We feel like the difference between 1 percent and 2 percent is bigger than the difference between 50 percent and 51 percent. This observation of our irrationality is one of the most influential concepts in behavioral science..."

Well, according to the math they taught when I was in school.

An increase from 1 to 2 is a 100% increase.

An Increase from 51 to 52 is a 1.96% increase.

Yeah, I know....

Probably have told this here before, but it puts me in mind of the birthday example:

If I am 1 year old on the day you are born, then when I turn 2, you will turn 1. You are 50% of my age.
When I turn 100, you will turn 99 - 99% of my age. Assuming indefinite lifespan, at some point you'd actually catch up. Right?

/right?
//two thirds of
///three slashies


Okay Zeno...
 
2 days ago  
Department of Duh called to let you know, if you didn't get this already, you might not be a human.


People are emotional creatures, outcomes MUST BE EMOTIONALLY SATISFYING, or it is highly unlikely the middle of the bell will be able to override their emotional feelings in favor of a more rational chocie.

If you can work with this you can do really well, but it begins with being honest about your own lack of self determination really, and that you will be enslaved to your emotions to some extend all life long.

Like this:
I can work-a-thon for office work and service work like a machine. My honey can do m mundane household stuff like a machine.
And we are opposites here.
I would rather work 10x as many hours at job stuff than spend just one hour washing dishes.
While my honey enjoys doing basic mundane tasks that can be put on a list and scratched off as you go.
but could not reasonably get along in a normal work office environemt for even a week probably.

So there we are, i log the vasts bulk of money earning labor hours for the house, and am emotionally glad to do that, and not have to do any dishes of know about paying bills.
Even though rationally if we equal split all and everything  from monye to home labor, i'd probably get back 20-30 free hours every month to do whatever i wanted with.


And yeah the house is work, but in less than 400 sq feet, no kids, no lawn, it's not a full time+OT job either.


If you can approach life knowing your emotions MUST BE satisfied, and that it is not reasonable for us to just do the most objectively rational thing all the time, if that flys in the face of our emotional satisfaction.
 
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