Peter Marklund

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Sat October 12, 2002

The Mysteries of Decisions

New York Times writes about this years Nobel Prize winners in Economics (Vernon L. Smith and Daniel Kahneman) and the kind of idiosyncracies in peoples decisions that they try to explain.

Why is it that people are willing to take a 20 minute trip to buy a calculator for $10 instead of $15 but are not willing to make the same trip to buy a jacket for $120 instead of $125 eventhough the saving is the same?

Or how about this. The lives of 600 people are at stake and you have two choices. The first option is that you will know for certain that 200 people are saved. The other is that there is a one third chance that all people will live and a two third chance that none will live. When phrased this way about 70% of people choose the first option. However, when re-wording the first option to say that 400 people will die for certain, the result is reversed. In other words, people prefer a certain positive outcome over an uncertain but bigger gain. However, when faced with a certain negative outcome the uncertain scenario is preferable.

Nothing that will keep me awake at night, but still fascinating...