Colin_Reid comments on The Allais Paradox - Less Wrong
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My experience of watching game shows such as 'Deal or No Deal' suggests that people do not ascribe a low positive utility to winning nothing or close to nothing - they actively fear it, as if it would make their life worse than before they were selected to appear on the show. It seems this fear is in some sense inversely proportional to the 'socially expected' probability of the bad event - so if the player is aware that very few players win less than ÂŁ1 on the show, they start getting very uncomfortable if there is a high chance of this happening to them, because winning less than ÂŁ1 is somehow embarrassing, and winning 1p is somehow significantly worse than winning say 50p. In contrast, on game shows where there's a 'double or nothing' option at the end, it is socially accepted that there's a high chance of winning nothing, so players seem to be much more sanguine about the gamble. I think the psychology of 'face' has a lot to answer for when it comes to such decisions.