How Loss Aversion Affects Market Research and Decision Making

You’re offered a gamble on a coin toss:

If it’s heads, you lose £100.

If it’s tails, you win £150.

Would you take the offer?

Despite the fact that you stand to win more than you can lose, and your chances of either outcome are equal, you probably don’t like the offer.

This is because of loss aversion.

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The Availability Heuristic, Green Tees & Decision Making

In a study, participants listen to either:

A list of 19 famous women and 20 less famous men

A list of 20 famous men and 19 less famous woman

Afterwards, some were asked to recall the names they could remember, and then if the list they had heard contained more men or women.

Unsurprisingly, the famous names were more readily recalled; but, interestingly, the vast majority of participants then incorrectly assumed that the gender of the more famous people were the majority gender in the list they heard.

This is an example of the Availability Heuristic.

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Denominator Neglect: What You Need to Know

Picture two urns stood on a table in front of you.

You’re given the opportunity to pick a marble from one of them, and drawing a red marble wins a prize.

The first urn has 10 marbles in it, 1 of which is red.

The second urn has 100 marbles in it, 8 of which are red.

Which urn would you choose? It doesn’t seem a tricky decision: your chances of drawing a red marble out of the first urn are greater (10%) than your chances of drawing a red marble out of the second urn (8%).

Read more at Attest.