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  • Okay, I have a hypothetical situation for youand you need to make a choice.

  • Listen carefully.

  • Youve just visited the doctor and she told you youre going to die unless you get treated

  • immediately.

  • There are two treatments -

  • The blue pill would give you a 100% chance of living another 12 years before dying, and

  • the red pill would give you an 89% chance of living another 12 years, a 10% chance of

  • living another 18 years and a 1% chance of sudden death.

  • Which do you choose?

  • Now remember your answer, and imagine a slightly different scenario.

  • Your regular doctor is out that day so you go to the slightly dodgier one next door,

  • who offers you two other treatments:

  • The green pill gives you an 11% chance of living 12 years before dying and an 89% chance

  • of sudden death, and the yellow pill gives you a 10% chance of living a full 18 years

  • before dying, with a 90% chance of sudden death.

  • So, which one of these do you choose?

  • So what did you base your decisions on?

  • Behavioural economists think we make decisions based on something called expected utility

  • it’s how much we expect that something will satisfy our wants and needs.

  • If you like chocolate ice cream more than vanilla, youll feel more satisfied if you

  • choose chocolate (in the animation both ice creams have cherries on top (I’ll come back

  • to this)).

  • So for you, chocolate ice cream has more expected utility.

  • Studies show that in the previous question most people choose the blue pill in the first

  • scenario, giving them a guarantee of living another 12 years, and the yellow pill in the

  • second scenario, giving them a 10% chance of living another 18 years, and a 90% chance

  • of death.

  • But what if instead we write the options out like this:

  • Now the options have something in common.

  • In the first scenario, in both cases you have an 89% chance of living 12 years, so if we

  • remove that, your decision shouldn’t change, right?

  • Kind of like how removing a cherry from both ice creams won’t change your favorite flavor.

  • In the second scenario, both options have an 89% chance of death in common, so we should

  • be able to cancel those too without changing your decision.

  • Hold on, now both scenarios are exactly the same.

  • But studies showed that most people chose the blue pill in the first scenario and the

  • yellow pill in the second one, which doesn’t make sense.

  • Both the blue and green pills give you a higher chance of living over the chance of a longer

  • life, and the red and yellow pills give you a chance of a longer life but with the drawback

  • of a lower chance of living.

  • So for people who chose the blue and yellow pills, what do they want?

  • A higher chance of living or a longer life?

  • This is called the Allais Paradoxit was first outlined by Maurice Allais, a Nobel-Prize

  • winning economist in a 1953 article.

  • The paradox undermines the theory of expected utility because it shows that we don't always

  • make decisions that align with our wants and needs.

  • We tend to make decisions based on how much we think we have to gain or lose now, rather

  • than on the final outcome.

  • And we also tend to choose certainty over risk, even if the riskier option is closer

  • to what we really want.

  • Psychologists who have studied the Allais Paradox found that people dislike risk in

  • general.

  • When questions are framed in terms of gains or losses, people are far more likely to consider

  • the losses first and try to minimise themit’s a phenomenon called loss aversion.

  • It’s similar to regret theory, which says that when were making decisions, some of

  • us try to minimise the amount of regret we feel afterward.

  • Humans are pretty complicated!

  • And not everything is as simple as ice cream.

  • So, what did you decide?

Okay, I have a hypothetical situation for youand you need to make a choice.

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B1 US chance pill living scenario paradox yellow

This Paradox Could Kill You

  • 168 14
    Kristi Yang posted on 2017/09/29
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