Do you know much about your own decision processes? Are you risk-averse? We think differently depending on how the choices are stated.

Consider this situation:

You have to choose between either

- an 80% chance of winning $4,000 with a 20% chance of winning nothing

or

- a 100% chance of receiving $3,000

Then look at this situation:

you can chose between

- an 80% chance of losing $4,000 with a 20% chance of breaking even

or

- a 100% chance of losing $3,000

In a formal study, 80% of the people chose the certain outcome in situation #1 ($3,000) even though the gamble had a higher payout.

In situation #2, 92% of the people chose the gamble, even though it’s mathematical expectation of a loss of $3,200 is larger than the certain loss of $3,000. When the choice involves loss of money, we are risk seekers and not risk averse.

These results are similar to people’s views of safety. The risk has to be evident and understandable in order for people to avoid the risk. If it is abstract or unknown, then people are less likely to use the provided protective gear or equipment. In my experience as a driver, for example, I can only recall two times in 40 years when wearing my seat belt mattered. So I could wear it less often and it probably won’t matter. The only problem is, I can’t predict when the next time I should be wearing it will be.

What did your choices to the situations above tell you about your risk aversion? Do you think that your answers were all about the benjamins? Would you have a different view if the content were about four fingers or three fingers?

Next post, we’ll look at two more situations with more serious implications. Will your answers or approach change? We’ll see…

Thanks, and let’s be careful out there!

Anna at abdpbt is responsible for the effort to Fight Listless Mondays. Find other list links on her blog. Her lists and the others linked there always give you something to think about, and may even make you smile!