People who visit this blog don’t expect to read about Prospect Theory, but I was stuck in traffic jam for 3.5 hours on my way back home from office yesterday, so you’ll never know.
I’m not suddenly having a penchant (thanks to bonbon for introducing me to this word which i find myself more confident writing than pronouncing) for economy or trading, but this theory that was developed by two psychologists named Daniel Kahneman and Amos Tversky in 1979, brought psychology further deep into economic analysis. Now you’re beginning to understand why I find this interesting? Thanks 
It all began with this experiment in which Kahneman & Tversky asked the participants these questions (which bonbon asked me):
1. which one would you choose: A. 100% possibility to win US$ 3,000 or B. 80% possibility to win US$ 4,000 yet 20% possibility to win nothing
so, for the above positive case, I chose A. I could just pocket the three grands and whistle my way back home or to the christian louboutin shop.
Then, he went on with the second question. similar, yet a bit depressing since it offered the opposite case. the negative. the losing. no expensive shoes.
2. which on would you choose: A. 100% possibility to lose US$ 3,000 or B. 80% possibility to lose US$ 4,000 yet 20% possibility not to lose any dollar
aha! suddenly i became optimistic and philosophical and chose B cos “you got to take risk in life!” and “you got to be optimistic in life!!!”
Then, Bonbon said politely that I got all the answers wrong……….. But, quickly added that he and many other people made the same decisions.
I asked these questions to my friends and the results show that human behavior doesn’t show significant change since 1979, and of course much much much before that. In the positive case, 80% people chose the safe US$ 3,000, while in the negative case, 92% people chose the gambling scenario. Well, my result is not exactly 80% and 92%, it’s actually 85% and 90%.
“We have an irrational tendency to be less willing to gamble with profits than with losses..”
Tvede (1999)
Now, why?
People tend to play safe in gaining, and gamble in NOT losing. In 80% possibility to lose, fat chance we will lose anyway, but it feels good to cling on to the 20% of hope, and later on we can just blame it on the bad luck or destiny or karma…
If we’re so certain of the 20% hope of not losing, why don’t we choose 80% of winning more anyway? 80 is a lot bigger hope than 20. instead we’re afraid of the puny threat of 20% possibility of not getting anything. so, we play safe by taking the US$ 3,000 away with us to the louboutin shop.
Why do I want to be in the comfort zone when it comes to gaining something? Why do I will to gamble when it comes to not losing?
Not only this behavior makes us lose money, or at least not getting the maximum amount we could possibly get, it makes us look like a bunch of mediocre in the game of life.
You can wake up in the morning thinking of how to survive another day, wasting your energy walking on earth trying not to lose. Or you can wake up in the morning thinking you deserve a better deal out of life, utilizing your energy walking on earth trying to win.
eh, interesting
eh, thanks