Choice Under Uncertainty
Friday, 15 October, 2010 Leave a comment
More good stuff all the way from Farnam Street. This is only an extract intended to highlight that we aren’t as smart as we would like to think when it comes to weighing up probability…even when the facts are presented to us. Although I’m sure that 80% of the readers would dispute that!
The financial sector globally employs vast numbers of clever people to know about probability – risk – uncertainty AND to turn it to their advantage but even they haven’t faired so well.
With the pain that we have all suffered as a result of the collapse of our economic system I think most of us have learned our lessons BUT I CAN’T SPEAK FOR EVERYONE.
Some of the general heuristics—rules of thumb—that people use in making judgments that produce biases towards classifying situations according to their representativeness, or toward judging frequencies according to the availability of examples in memory, or toward interpretations warped by the way in which a problem has been framed. These heuristics have important implications for individuals and society.
Framing and Loss Aversion
The way in which an uncertain possibility is presented may have a substantial effect on how people respond to it. When asked whether they would choose surgery in a hypothetical medical emergency, many more people said that they would when the chance of survival was given as 80 percent than when the chance of death was given as 20 percent.
Source: Decision Making and Problem Solving, Herbert A. Simon