Making decisions is an underlying base of
all economics. Economics depends on the
decisions people make, and it changes with the changes in decisions. So in order to know how economics works, one
has to know how the brain makes decisions based on its own judgments. There are many different things that go into
making a decision, some consciously and some not; I will mainly go into the
impact of gains versus losses. Consider the following choices:
Get $900 for sure or 90% chance to get $1,000
Lose $900 for sure or 90% chance to lose $1,000
Most people would choose the first option in the first
problem, but the second in the second problem.
People would rather gain money for sure than risk getting nothing, but would
want a chance for whether or not they lose money. Along with this, people dislike losses more
than they like gains. This graph shows
people value the money they lose more than the money they gain; this will lead
them to need odds to be much more in their favor in order for them to take the risk.
"Basic
Concepts." - Dickinson College Wiki. Wikipedia, 3 May 2007.
Web. 17 Dec. 2012.
Kahneman, Daniel. Thinking, Fast and Slow. New York:
Farrar, Straus and Giroux, 2011. Print. Page 279.
No comments:
Post a Comment