Teach me something

We are finally getting into the swing of things with school. I am learning more everyday. After all of my classes, B always asks me to explain something I learned. Here is my example from last night:

Did you know that people will answer problems differently depending on if the outcome is presented as a loss or a gain... even if the statistical probability is the same. Why? Because we are human and, when presented with a moral dilemma, we rely on more than probability.

Here is my exact example from class (POLI7962, Dr. C Weber):

 

example 1

You are a policy-maker and are reviewing a national defense initiative.The US is developing a National Missile Defense (NMD) system designed to defend against nuclear missiles (a mini-Star Wars). There are two versions of the plan and it is up to you to pick one. Experts all agree that 6 million lives are at risk. It is your groups job to decide which policy to adopt.

If program X1 is adopted, 4 million lives will be lost.

If program X2 is adopted, there is a one-third probability that no lives will be lost and a two-thirds probability that 6 million lives will be lost.

example 2

You also chair a subcommittee on public health and your vote is decisive in an upcoming decision on preventing a bird-flu epidemic. Assume that a relatively e↵ective strategy in preventing illness is with the usage of efficient respirators designed to block the inhalation of airborne viruses. Two US-based companies are bidding for a government contract, but their products slightly differ. Assume that 7 million lives can be saved by preparing for an epidemic with one of these contracts.

If company B gets the contract an estimated 4.2 million lives will automatically be saved.

If company C gets the contract, there is an estimated 40% probability that no lives will be saved and a 60% probability that all lives will be saved.

In example 1, you are more likely to pick option X2 which is presented as a risk because option X1 is presented as a loss. In example 2, you are more likely to pick the option with no risk (B) because it is presented as a gain.

What does this tell us? When you need to present two options to someone and you want that person to pick a certain outcome, you may be able to influence their decision depending on if you present the outcome as a loss or a gain.

 

Not only did I learn something new this week, so did you!

P.S. This is called prospect theory and a nobel proze was won by an economist for this discovery.