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Jonathan_Graehl comments on Prospect Theory: A Framework for Understanding Cognitive Biases - Less Wrong

66 Post author: Yvain 10 July 2011 05:20AM

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Comment author: Jonathan_Graehl 10 July 2011 08:10:03PM 1 point [-]

We already knew that losses weigh roughly 2-3x (I forget which) as heavy as gains.

It's interesting but not surprising that people can re-orient losses and gains by framing.

It does make sense that the subjective value of monetary gains and losses should be more steeply sloped around 0, to the extent that emotional pain/reward needs to be strong enough in order to guide decisions even for small amounts of money (as in everyday transactions), but the dynamic range of the physical systems that register these feelings is limited. So we expect the magnitude of the slope to decrease as the quantities grow larger.

I wonder what happens to people who invest and manage to reframe their losses and gains as being percentage-of-total-wealth? We shouldn't accept that the only allowed frames are those that shift the origin.

It is interesting to point out that people act by weighting outcomes with a subjective probability that consistently differs from the actual information available to them. I'd like to understand the evidence for that better, but it's plausible - I can imagine it following from some fact about our brain architecture.

I'd be more impressed with the theory if it could really identify a characteristic of a person, even in just the domain of monetary loss/gain, such that it will predict future decisions even when that person is substantially poorer or richer than when the parameters were fit to them.