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Let's say you're on a game show.
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You've already earned $1000
in the first round
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when you land on the bonus space.
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Now, you have a choice.
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You can either take
a $500 bonus guaranteed
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or you can flip a coin.
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If it's heads, you win $1000 bonus.
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If it's tails, you get no bonus at all.
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In the second round, you've earned $2000
when you land on the penalty space.
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Now you have another choice.
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You can either take a $500 lost,
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or try your luck at the coin flip.
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If it's head, you lose nothing,
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but if it's tails, you lose $1000 instead.
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If you're like most people,
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you probably chose to take
the guaranteed bonus in the first round
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and flip the coin in the second round.
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But if you think about it,
this makes no sense.
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The odds and outcomes in both rounds
are exactly the same.
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So why does the second round
seem much scarier?
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The answer lies in a phenomenon
known as loss aversion.
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Under rational economic theory,
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our decisions should follow a simple
mathematical equation
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that weighs the level of risk
against the amount at stake.
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But studies have found
that for many people,
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the negative psychological impact
we feel from losing something
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is about twice as strong as the positive
impact of gaining the same thing.
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Loss aversion is one cognitive bias
that arises from heuristics,
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problem-solving approaches based on
previous experience and intuition
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rather than careful analysis.
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And these mental shortcuts can lead
to irrational decisions,
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not like falling in love
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or bungee jumping off a cliff,
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but logical fallacies that can easily
be proven wrong.
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Situations involving probability are
notoriously bad for applying heuristics.
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For instance, say you were to roll a die
with four green faces and two red faces
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twenty times.
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You can choose one of
the following sequences of rolls,
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and if it shows up,
you'll win $25 dollars.
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Which would you pick?
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In one study, 65% of the participants
who were all college students
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chose sequence B
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even though A is shorter
and contained within B,
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in other words, more likely.
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This is what's called
a conjunction fallacy.
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Here, we expect to see more green rolls,
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so our brains can trick us into picking
the less likely option.
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Heuristics are also terrible
at dealing with numbers in general.
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In one example, students were split
into two groups.
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The first group was asked whether
Mahatma Gandhi died before or after age 9,
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while the second was asked whether
he died before or after age 140.
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Both numbers were obviously way off,
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but when the students were then asked
to guess the actual age at which he died,
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the first group's answers averaged to 50
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while the second group's averaged to 67.
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Even though the clearly wrong information
in the initial questions
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should have been irrelevant,
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it still affected the students' estimates.
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This is an example
of the anchoring effect,
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and it's often used in marketing
and negotiations
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to raise the prices
that people are willing to pay.
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So, if heuristics lead to
all these wrong decisions,
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why do we even have them?
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Well, because they can be quite effective.
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For most of human history,
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survival depended on making quick
decisions with limited information.
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When there's not time to logically
analyze all the possibilities,
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heuristics can sometimes save our lives.
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But today's environment requires
far more complex decision-making,
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and these decisions are more biased
by unconscious factors than we think,
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affecting everything from health
and education
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to finance and criminal justice.
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We can't just shut off
our brain's heuristics,
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but we can learn to be aware of them.
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When you come to
a situation involving numbers,
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probability,
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or multiple details,
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pause for a second
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and consider that the intuitive answer
might not be the right one after all.