Loss Aversion 12 May 2019
No-one likes to loose something of value. I like to avoid risks. Today I learned a lesson:
Avoiding reasonable risks may have a very high cost. If I always hide in fear, shame or pride, my
Loss Avoiding has a very high price.
I learned my lesson from
Samuelson's Problem explained by Daniel Kahneman.
Spinning a coin
I offer you a bet: 50% chance to loose 1000 Euro or to win 2000 Euro.
Most people refuse the bet for fear of loosing 1000 Euro.
Offer 100 of those bets
With the single bet you could also win 2000 Euro. Averagely you will win 500 Euro per bet.
With 100 such bets, you will win averagely 100 times 500 Euro = 50000 Euro. The chance to loose something is 0.1% and even then over a large number of series (100000) the loss is limited to 1000 Euro.
So it is pretty safe to accept 100 of those (independent) bets. And refusing 100 of such opportunities robs you averagely from 50000 Euro.
Fear, Shame and Pride
If my shame, fear or pride draws me into avoiding of opportunities, I will miss a lot of fun and good opportunities in life.