MEPX
Chapter 5 of 10All chapters
  1. 1Why we have them
  2. 2Biases about belief
  3. 3Biases about numbers
  4. 4Biases about ourselves
  5. 5Biases in decisions
  6. 6Biases in groups
  7. 7Looking backwards
  8. 8Biases in what you see
  9. 9What actually helps
  10. 10Being careful with the concept

Chapter 5 of 10

Biases in decisions

Loss, sunk cost and the status quo.

Loss aversion

A loss hurts roughly twice as much as an equivalent gain pleases, which makes people accept bad odds to avoid realising a loss and refuse good odds that risk one.

  • It explains holding losing investments and avoiding worthwhile risks.
  • Reframing a choice as a gain or a loss reverses decisions with identical outcomes.

Sunk cost

Money and time already spent should not affect the decision, and reliably do. The useful question is what you would choose today if you were starting fresh.