SoylentNews is people
SoylentNews
[20200519_114228 UTC: Updated to remove possible loss as my perceived implication of the original question.--martyb]
If you were given $1,000 to play a game, would you accept a 50 percent chance to double your money or a 100 percent guarantee of gaining an additional $500?
Implied in the question was that a 50% chance to double the $1,000 was also a 50% chance to lose all of the $1,000. Put that way, I'd take the 100% guarantee of gaining $500 more. Hmm. But why did I make that choice? What if I started with just $10? Or even $1? Would I choose differently? What if I started with $100,000 or even $1,000,000? Then what would my choice be — and why?
That opening question was one of 17 hypotheticals posed when attempting to replicate 1979 foundational research on loss aversion and prospect theory.
Global Study Confirms Influential Theory Behind Loss Aversion:
A new global study offers a powerful confirmation of one of the most influential frameworks in all of behavioral sciences and behavioral economics: prospect theory, which when introduced in 1979 led to a sea change in understanding the irrational and paradoxical ways individuals make decisions and interpret risk with major impacts for science, policy, and industry. Led by a Columbia University Mailman School of Public Health researcher, the new study in 19 countries and 13 languages replicates the original study that provided the empirical basis for prospect theory. Results appear in Nature Human Behaviour.
Developed by Nobel Prize winner Daniel Kahneman and Amos Tversky, prospect theory has been called the most influential theoretical framework in all of the social sciences and popularized the concept of loss aversion, which says that people prefer small guaranteed outcomes over larger risky outcomes. The 1979 paper that launched the theory is today the most cited paper in economics and is among the most cited in psychological science.
The new study led by Kai Ruggeri, PhD, assistant professor of health policy and management, is a robust test of prospect theory at a scale commensurate with its impact—and the first to test the theory in so many countries, languages, currencies, and to focus on the generalizability of the theory. Ruggeri and colleagues used nearly identical methods to those in the original study, modifying them only to make currency values relevant for a 2019 sample within each country. [...] In all, 4,098 respondents who completed all the questions were included in the final analysis.
Results of 1979 study—now confirmed in the new global study—gave rise to prospect theory and upended orthodoxies around rational choices. Among the original study's findings: people tend to be risk-seeking when maximizing gains, but risk-averse when minimizing losses; our preferences may change depending on how they are rendered sequentially; and we tend to overweight small probabilities.
The researchers found that Kahneman and Tversky's 1979 empirical foundation for proposing prospect theory broadly replicates in all the countries they studied: they report a 90 percent replication in areas directly testing the theoretical contrasts at the heart of prospect theory.
Journal Reference:
Kai Ruggeri, Sonia Alí, Mari Louise Berge, et al. Replicating patterns of prospect theory for decision under risk, Nature Human Behaviour (DOI: 10.1038/s41562-020-0886-x)
(Score: 5, Insightful) by Anonymous Coward on Tuesday May 19 2020, @08:18AM (5 children)
It seems like this is only the assumption of the editor. Nothing actually claims or implies this, and assuming it, as has been pointed out,.makes the whole exercise pretty dumb.
If you don't make this unwarranted assumption, though, the question is actually interesting. A guaranteed $1000 plus either $500 or a 50/50 chance at an additional $1000, and does this change if you guarantee a different amount of money?
So let's just ignore the editor derailing their own story, and realize that you don't lose the starting $1000. Or consider it a demonstration of why we do double blind experiments, to keep the biases of the staff from disrupting the experiment.
(Score: 3, Interesting) by theluggage on Tuesday May 19 2020, @08:49AM (1 child)
That was my impression when I took one of those "financial risk tolerance" questionnaires - the honest answer would have been "no" to everything because I wouldn't risk more than the loose change in my pocket based on one line of information and no opportunity to ask questions.
Plus, it's all fun and games while it is hypothetical. The only way to research this properly would be to tell the ethics committee to fuck off (with informed consent) and set up shop in a casino. (Never mind the sample bias, think of the profits!)
(Score: 1, Interesting) by Anonymous Coward on Tuesday May 19 2020, @09:24AM
Unless your name is Donald Jerry Trump. No profits. Bankruptcy. Mob figures out to make an example of you, so you have to get elected Precedent, and do the chloroxyquinine, so they can't touch you. Until you lose the election in the second term.
(Score: 2) by martyb on Tuesday May 19 2020, @11:55AM (2 children)
Correct.
I saw "loss aversion" in the story and made an incorrect conclusion about there also being a potential for loss. :( Story is updated; thanks for bringing it to my attention!
Wit is intellect, dancing.
(Score: 0) by Anonymous Coward on Tuesday May 19 2020, @01:09PM
I would expect that the next question would be something along the lines of:
You are given $1000 to play a game, you have the option to take that money or risk all of it to get double with equal odds.
You can then compare the two games, and people's responses, as the odds are the same, but the situation is different (money you have vs money you might get).
(Score: 2) by theluggage on Tuesday May 19 2020, @01:16PM
Understandable - everybody is familiar with the "double or nothing" game, whereas the "pedantically correct" interpretation is nonsensical. Pro tip: If anybody in real life says to you "Here's $1000 to keep and I may or may not give you some more money" then the $1000 is probably fake and the next question is going to be a request for your bank details and mother's maiden name so they can collect the "handling fee" - so loss aversion is absolutely the correct response.
Faced with an ambiguous question with no opportunity to clarify it, the reasonable interpretation is the one that isn't totally nonsensical. In this case, assume that your money is at risk - if only because there's a risk you misunderstood the game.
Now, maybe the question was a misquote from the original - if not, then the only thing it was testing was how people interpret the question.