Tag: Amos Tversky

💎 How our perception of risk is skewed by “what makes a good story or hypothesis”(rather than a cold calculation of the odds)

Many other studies produced similar results. Kahneman and Tversky divided 245 undergrads at the University of British Columbia in half and asked one group to estimate the probability of a massive flood somewhere in North America in 1983, in which more than 1,000 people drown.’ The second group was asked about an earthquake in California sometime in 1983, causing a flood in which more than 1,000 people drown.’ Once again, the second scenario logically has to be less likely than the first but people rated it one-third more likely than the first. Nothing says ‘California’ quite like ‘earthquake’.

Excerpt from: Risk: The Science and Politics of Fear by Dan Gardner

💎 On our tendency to make decisions or judgements based on what we can remember easily (availability bias)

By behavioural psychologists Daniel Kahneman and Amos Tversky in 1973. In their classic experiment, they asked people to listen to a list of names and then recall whether there were more men or women on the list. Some people in the experiment were read a list of famous men and less famous women, while others were read the opposite. Afterwards, when quizzed by the researchers, individuals were more likely to say that there were more of the gender from the group with more famous names. Later researchers have linked this effect to how easily people could retrieve information: we tend to over-rely on what we can remember easily when coming to decisions or judgements.

Excerpt from: The Perils of Perception Why We’re Wrong About Nearly Everything by Bobby Duffy

💎 On more information leading to worse decisions (investment losses)

Why does this matter? There’s solid evidence that experiencing such losses—noticing that our portfolio is losing money—leads to poor choices. In one lab experiment by Richard Thaler, Amos Tversky, Daniel Kahneman, and Alan Schwartz, subjects were far more likely to invest in a bond fund when feedback was given more frequently. Unfortunately, these low-risk bonds also generate lower returns over the long haul. As the scientists noted, “Providing such investors with frequent feedback about their outcomes is likely to encourage their worst tendencies…. More is not always better. The subjects with the most data did the worst in terms of money earned.” Such is the vicious circle of loss aversion, as our strong dislike of losses causes us to lose even more.

Excerpt from: The Smarter Screen: Surprising Ways to Influence and Improve Online Behavior by Shlomo Benartzi and Jonah Lehrer