Wui-Ping Blog

Scenario 1

You want to go and watch a movie which cost $10. Upon reaching the cinema to buy the ticket, you realized that you have lost $10.

Will you buy the movie ticket?

Scenario 2

You already spent $10 and bought yourself a movie ticket. Upon reaching the cinema, you realized that you have lost the ticket.

Will you buy another movie ticket?


In scenario 1, most people answered yes, but in scenario 2, most people answered no.
It is really strange to know that people don't behave rationally; because in both scenario, the monetary lost is exactly the same = $10.



If you are at a party and someone want to play a game with you for only 1 time. You will lost $100 if you flip the coin, and it land on a head, and if tail you will win some money. What is the least amount of winning that will cause you to wanna play the game?

1) $50
2) $100
3) $150
4) $200
5) $250
6) $300

Most people start to want to play the game when the winning goes above $200.
Why should they? Will they now have a higher chance of winning? No. The chances of getting the tail is still 50%, no matter how much you are going to win.

This shows that people are not risk averse, but are loss averse. People are still willing to take risk, not because chances of winning is higher, but only because the winning is higher.


Scenario 1

You work very hard for 18 hours per day the last week and only managed to earn $1,000.
How much of that $1,000 will you spend away the next week?

Scenario 2

On the last day of the week, you pick up a $1,000 note on the floor.
How much of that $1,000 will you spend away next week?

Studies have shown that in scenario 2, most people will much more readily spend most of $1,000 away the following week.
Why? Is the value of $1,000 different?
Why do we place our own personal value on money due to the ways we got them? Isn't money the same value no matter how we got them?
$1,000 hard earned money can only buy you the same amounts of thing $1,000 of money that was picked up.

posted by Wui-Ping @ 1:04 PM Comments: 0