Tuesday, 28 April 2009

Asymmetry in Choices

Kahneman and Tversky won a Nobel Prize in Economics for their work on human behaviour. They discovered that there are anomalies and contradictions in how we manage risks. They called their work "Prospect Theory" and showed how our choices change depending on how the risks and rewards are presented:
"A theory that people value gains and losses differently and, as such, will base decisions on perceived gains rather than perceived losses. Thus, if a person were given two equal choices, one expressed in terms of possible gains and the other in terms of loss, people would choose the former."
This highlights a problem with democracy (either Parliamentary or Interactive) as the wording of the bill may unduly influence the results. It may even mean that savvy politicians manipulate the wording of bills to influence the results.

It also highlights how important real scientific data is for identifying the truth and how carefully that data should be presented.
More on Prospect theory here and here's a simple summary from Investopedia (you may need to click past the welcome screen).

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