Losses vs Costs

Would you rather accept a gamble that offers a 10% chance to win $95 and a 90% chance to lose $5, or would you pay $5 to participate in a lottery that offers a 10% chance to win $100 and a 90% chance to win nothing?

These two scenarios are actually the exact same, but in a survey more people chose the latter, because losses are weighted more heavily than costs in people’s minds.  Someone would rather pay $5 to gamble at the risk of losing nothing than to gamble by paying nothing and risk losing money.

There was a debate about whether gas stations could charge different amounts depending on the method of payment, cash or credit.  The credit-card lobby wanted, if the difference was allowed, it to be labeled as a cash discount rather than a credit surcharge, because people are more willing to not get a discount than to have to pay a fee. Businesses can use these strategies about the different aspects of decision making to their advantage when trying to make their side of the decision more appealing.

http://www.washingtonpost.com/blogs/rosenwald-md/post/two-gas-prices-cash-and-credit-is-this-fair/2012/06/26/gJQAuK8K4V_blog.html

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011. Print. Page 364.

Rosenwald, Michael S. "Two Gas Prices: Cash and Credit. Is This Fair?" Washington Post. The Washington Post, 26 June 2012. Web. 15 Dec. 2012.

"Nudge Blog." Nudge Blog. Nudge, 8 Aug. 2008. Web. 17 Dec. 2012.