In this episode of Choiceology with Katy Milkman (), we take a look at how framing a choice based upon what you stand to lose versus what you stand to acquire impacts your tolerance of danger.
Luis Green was a participant on the popular television video game reveal Offer or No Offer. The video game is mainly one of possibility, however there are moments during play where the participant has an alternative to accept a money deal to give up. At one point in the game, Luis was offered $333,000 to merely walk away. An ensured win! It looks like an obvious choice. But as you'll hear from the story, there are other aspects that influenced his decision.
Katy highlights these elements with a version of a famous experiment. Volunteers exist with 2 differently worded but mathematically similar situations. A basic shift from framing the circumstance as a potential gain to one of potential loss leads to starkly different choices from the volunteers.
Next, Katy talks to unique guest Daniel Kahneman about the underlying theory that explains human behavior in these types of scenarios.
Daniel Kahneman is a teacher of psychology and public affairs emeritus at the Woodrow Wilson School () and the Eugene Higgins Professor of Psychology Emeritus at Princeton University () He was awarded the 2002 Nobel Reward in Economics () for his pioneering research with Amos Tversky () Their work helped establish the field of behavioral economics. Kahneman is likewise the author of the bestselling book Believing, Fast and Slow. ().
Finally, Katy talks to Colin Camerer () about a few of his favorite studies on risk seeking in the domain of losses, in addition to useful techniques for preventing this less-than-ideal behavior.
Colin Camerer is the Robert Kirby Teacher of Behavioral Finance and Economics at the California Institute of Innovation (), where he teaches cognitive psychology and economics. You can read his paper "Prospect Theory in the Wild: Evidence from the Field" here ().
Choiceology is an original podcast from Charles Schwab (). For more on the series, see schwab.com/podcast ().
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Essential Disclosures:
All expressions of viewpoint go through change without notice in response to shifting market conditions.
The comments, views, and opinions revealed in the discussion are those of the speakers and do not necessarily represent the views of Charles Schwab.
Information consisted of herein from third-party suppliers is gotten from what are considered reputable sources. However, its precision, completeness or reliability can not be guaranteed.
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