How we think about making and losing money…

Psychologists Amos Tversky and Daniel Kahneman are interested in the concept of loss and gain.

During the course of their research, they conducted one experiment in which a group of people were told to imagine they had $300. They were then given a choice between (a) receiving another $100 or (b) tossing a coin, the outcome of which would determine whether they received $200 or $0.

They found that most of us prefer (a) to (b).

They then conducted a second experiment whereby participants were asked to imagine they had $500. The choice they were then given was to (c) give up $100 or (d) toss a coin to determine whether they lost $200 or $0.

Here, interestingly, they found that most of us prefer (d) to (c). So when it comes to making money we are more risk averse than when it comes to losing money. We prefer steady gains to the possibility of making more on a once-off basis but prefer the chance to lose nothing, even if it means we could also lose lots.

It’s an interesting concept, and plays out on Wall Street and in other financial capitals in terms of how people trade and try to make money.

But it plays out in our everyday lives also. Where we choose to focus our attention. How we choose to work. To play 5 gigs each week with relatively low fees, for example, rather than figuring out how to play just one with a higher fee.

It might be interesting to think about things in the other way and see where it gets us.

Photo by Live Richer on Unsplash