Avoiding risk

Media_httpprospecttheorybehaviouralfinancenetkahnemantversky197923png_fgdbcadnffwowrc

Cognition and Language Lab: Avoiding risk: “On the X axis is objective gains and losses (for sake of simplicity, assume what we are gaining and losing is money). On the Y axis is subjective utility — how much you like the gain or dislike the loss.

The striking thing is that the line is not straight.”

the difference between winning $5 and winning $15 is greater than the difference between winning $1005 and $1015. The same goes for losses — losing $5 is annoying, but losing an extra $5 on top of a loss of $1000 is just a drop in the bucket.

“This graph also shows that losses loom larger than gains, but I leave it to the reader to work this out for themselves.”

Advertisements

About mrG

I am a musician but I am a different sort of musician
This entry was posted in Uncategorized. Bookmark the permalink.

Discuss

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s