Loss aversion : Why you're not already rich - Deepstash
Loss aversion : Why you're not already rich

Loss aversion : Why you're not already rich

Lucky you are, you can make a wonderful bet. At equal propabilities :

  • 50% : You receive 120 $
  • 50% : You lose 100 $

Stop reading, would you accept this ?

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If you're like the majority of us, you refused this gamble.

Our brain is not familiar with statistics. You don't think to the utility of the bet, you see two situations :

  1. You change your current situation. You win a little quantity of money, cool. OR you lose almost the same amount, you swear against yourself, what an idiot decision
  2. You don't change your situation, nothing happens

This is the loss aversion, our brain tends to avoid losses.

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MORE IDEAS FROM Thinking, Fast and Slow

Confirmation bias : How powerful are conspiracy-theories

Good stories are simple. 

And when they seem coherent, we accept them without activating our critical mind (see "Main cause of biased judgment" in this collection). 

In particular, the conspiracy theories have another viral weapon. As the elements which take part of the theory are batching and seem plausible, you tend to strenghten your thoughts without taking into account what is belying them. This is the confirmation bias.

As you're sure that D Trump is fighting the "deep state", he accuses the media to spread fake news. Bim 'n boom ! You begin to believe that Thanos manage TV and papers.

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Main cause of biased judgment

Your mind likes the feeling of coherence and sentiment of habit, of déjà-vu. 

From an evolutionnary point of view, Sapiens needs to have a construction of reality clear. 

  • Do you have to treat with this plant ? No, you recognize those red berries that causes flu.

D. Kahnemann calls this process the System 1. This is a cognitive agent which is trying to explain all of you hear, see and feel by a causal link.

A first way to improve your critical mind is to admit that chance, at least multiple causes make events happen. 

  • Explain that WW2 is caused by the madness of Hitler is simple, not accurate.

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RELATED IDEA

DANIEL KAHNEMAN

“Nothing in life is as important as you think it is, while you are thinking about it”

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Our brains have two "systems" that complement eachother, with their own capabilities, limitations and functions.

  • System One is fast, automated and precise, but can be easily tricked and has a small working window.
  • System Two is slower, can make complex thoughts achieved in a specific algorithm and takes control over it's brother when he needs to with it's long but limited attention buffer.

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Our society is built on the premise that human beings are more or less rational. We trust that our leaders, judges, scientists, and other experts are making fair and unbiased decisions, and that we ourselves are seeing the world as it is and making the best choices we can.

If only that were true!

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