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I think in Kahneman's book (unless I'm recalling incorrectly), the situation wasn't "90% chance of $1000 or 100% chance of $900). It was more like "90% chance
by vbtemp 15y ago
I think in Kahneman's book (unless I'm recalling incorrectly), the situation wasn't "90% chance of $1000 or 100% chance of $900).
It was more like "90% chance of $1000, or 100% chance of $850" (i.e., something a little less than P(X)*X). That was the whole point), people are willing to pay a premium for certainty - and the contrary (are willing to pay a premium to turn a 0.01% chance into a 0% chance)
- colanderman 15y agoSame deal. $850 and $1000 pretty much both equate to "some large sum of money" in my mind. Now if the sums were $8.50 and $10.00 instead, I'd likely make the more rational choice (90% of $10), because such choices with smaller amounts of money come up far more often in my life: the sample size will be large enough that the mean approaches the expected value.
- vbtemp 15y agoThat's the point - you're willing (we all are, usually) to pay a premium for that certainty. In the book he uses all sorts of figures or probabilities (I remember one case, when it was like 99% chance to win one million dollars, or 100% chance to win ${800,000, $600,000, $400,000} -- starts getting a little tricky there, right?)