We are back with Tversky and Kahneman. This time, it is about decision making based on how the risk appears to you. There is one problem statement with two choices. Two groups of participants were selected and given this but in two different formats.
Here is the question in the first format: imagine that the country is bracing for a disease that can kill 600 people. Two programs have been proposed to deal with the illness – program 1 can save 200 people, and program 2 gives 1/3 probability to save all and 2/3 chance to save none. Which of the two do you prefer? 72% of the people chose program 1.
The second group of participants was given the same problem with different framing. Program 3 will lead to 400 people dying, and program 4 has a 1/3 probability that none will die and 2/3 probability that all will die. 78% of the respondents chose program 4!
Risk aversion and risk taking
Identical problems, but the choices are the opposite! The first case sounded like saving lives, and the players chose what appears to be a risk-averse solution. In the second case, the options sounded like losing lives, and people were willing to take the risk and went for the probabilistic solution.
Tversky, A.; Kahneman, D., Science, 1981, 211, 453
