Sunday, October 30, 2011

Loss Aversion

Here is a really interesting example of loss aversion.  I listen to a game show on NPR called Says You.  In one of the rounds, they give one team an obscure word, they come up with three definitions, and the other team has to guess which one is correct.  After listening to the show 100 times, I have realized that the way they decide is not based on the once most likely to be correct, but rather the one that would be most embarrassing if it turns out to be wrong.  So sometimes they think the silliest sounding answer is the correct one, but are afraid to guess that one, so they guess their second choice instead.  You can tell this is what they are doing because they discuss the answers out loud as a team.  And this is often what it sounds like they are doing.  

Interesting that they would rather be wrong than look foolish.  But not surprising.