Prospect Theory
People evaluate outcomes as gains and losses from a reference point, feel losses more than gains, are risk-averse for gains and risk-seeking for losses, and overweight small probabilities and certainty.
An everyday example
Taking a sure $500 over a 50% chance of $1,100, but gambling on a 50% chance of losing $1,100 rather than accepting a sure $500 loss.
What it can cost you
Every one of these curves is a handle a seller can turn: set the reference point, frame the loss, promise certainty.
Warning signs
- My risk appetite flipped when the framing flipped.
- I did not choose the baseline I am comparing against.
One thing to do
Ask three questions of any offer: what is the reference point, who chose it, and what does the choice look like if I reframe it as its mirror?
Is this happening to you right now?
Describe your situation and get a read across all six brains. No account needed.
Check my situationRelated
Not medical, legal or financial advice. How Decision IQ works
One decision idea a week
One useful idea. No daily drip, no pressure.