Getting people to understand this issue has been extremely challenging, it's fun to try to do in person. What I eventually figured out to make it "land" is to have people imagine a monty hall problem with 1000 doors. After they choose, you show them that 998 of the doors do not have the prize. Should they switch? At that point they "get" it because it was 1/1000 when they chose first, now it's 1/2 for the "other" door and still 1/1000 for the "endowment" door they chose ahead of time. I never thought about the endowment effect + loss aversion as the primary driver of not switching doors, totally makes sense!
Sadie (the 13yo) coded up the "Annie Duke decision analyzer" (https://scratch.mit.edu/projects/501509175/) when she was 11 and learning the Scratch programming language, so working on it!
Great write-up! But one question I thought about while reading it...one of our cognitive biases as humans is to towards action ("action bias"). That we hate the feeling of doing nothing in a lot of situations, even if it's the best choice. It's the old story about why soccer goalies dive in a direction when, statistically, they'd block more shots if they just stayed in the middle. How do you think our loss aversion interact with our bias towards action in a case like this? Shouldn't we want to switch at some level?
Great question! It depends on what the status quo is. We don't like losing from veering from the status quo and diving in soccer is the status quo decision. Staying in the center would be innovative so if you lost against a free kick that way you would get more grief than losing by diving.
In the NFL, it used to be that punting on fourth down was the status quo so when teams went for it and failed to convert they got way more flak than if they punted and the other team, say, ran it back for a touchdown.
So with loss aversion, it just depends on what the established status quo is. Innovate and loss aversion will be more heavily recruited.
Getting people to understand this issue has been extremely challenging, it's fun to try to do in person. What I eventually figured out to make it "land" is to have people imagine a monty hall problem with 1000 doors. After they choose, you show them that 998 of the doors do not have the prize. Should they switch? At that point they "get" it because it was 1/1000 when they chose first, now it's 1/2 for the "other" door and still 1/1000 for the "endowment" door they chose ahead of time. I never thought about the endowment effect + loss aversion as the primary driver of not switching doors, totally makes sense!
That's a really smart idea that makes it so much clearer. I will use that!
I am worried about my 11 year old since I tried it on her this AM and she wanted to stay. Then my 13yo was like "uh, switch obviously!"
I'd be more trying to think about how to get your 13yr on the college fast track than worried about your 11 yr old! That's impresive!
Sadie (the 13yo) coded up the "Annie Duke decision analyzer" (https://scratch.mit.edu/projects/501509175/) when she was 11 and learning the Scratch programming language, so working on it!
Wow! That's amazing! Love that she took the flow chart and coded it. tell her how impressed I am!
Great write-up! But one question I thought about while reading it...one of our cognitive biases as humans is to towards action ("action bias"). That we hate the feeling of doing nothing in a lot of situations, even if it's the best choice. It's the old story about why soccer goalies dive in a direction when, statistically, they'd block more shots if they just stayed in the middle. How do you think our loss aversion interact with our bias towards action in a case like this? Shouldn't we want to switch at some level?
Great question! It depends on what the status quo is. We don't like losing from veering from the status quo and diving in soccer is the status quo decision. Staying in the center would be innovative so if you lost against a free kick that way you would get more grief than losing by diving.
In the NFL, it used to be that punting on fourth down was the status quo so when teams went for it and failed to convert they got way more flak than if they punted and the other team, say, ran it back for a touchdown.
So with loss aversion, it just depends on what the established status quo is. Innovate and loss aversion will be more heavily recruited.