The power of loss

The Frontal Cortex blog has a fantastic piece on ‘loss aversion’ – the cognitive bias where try to we avoid losses more than we try to obtain gains – and its origin in the Allais Paradox.

The crucial thing about loss aversion is it is not about just losing things – it’s also about the perception that we might be losing something, regardless of the actual impact on our resources.

For example, people tend to be less keen to undergo surgery when it is described as having a 20% death rate than when described as having a 80% survival rate, even though both mean exactly the same thing.

The post over at the Frontal Cortex does a great job of weaving together the psychology of the effect, the story of how it was discovered, and it’s impact on our lives, in an excellent brief article.
 

Link to Frontal Cortex on the the Allais Paradox and loss aversion.

2 Comments

  1. Posted October 23, 2010 at 10:42 pm | Permalink

    Yep. Learned about this in my cognitive psych class. Interesting stuff!

  2. Posted October 26, 2010 at 10:28 am | Permalink

    Just goes to show the power that language has over our perception of reality. Its like positive news / odd go through a completely different processing procedure than news or odds that are deemed not to be in our favor.


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