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Wednesday, January 10. 2007

Risk

From Stumbling and Mumbling:

Given a choice between £44,000 for sure and a 50-50 chance of either £3,000 or £250,000, which would you choose?

Risk and risk aversion can be "logically illogical." Read the piece. This is the reason Captain Kirk was the Captain, not Mr. Spock, even though Mr. Spock had a higher IQ.

Posted by The Barrister in Fallacies and Logic at 09:06 | Comments (3) | Trackbacks (0)

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I recall reading a psychological study performed on university students along these lines a while back.

The study had two proposals.

Given the choice between 100% chance of winning $2000 and a 70% chance of winning $3000 (30% receive $0), which would you choose ?

Given the choice between 100% chance of losing $2000 and a 30% chance of losing $0 (70% losing $3000), which would you choose ?

The participants tended to choose the guaranteed $2000 win and choose the 30% chance of losing $0 (70% lose $3000)... which is precisely the set of decisions that results in the least amount gained. The expected outcomes for the cases with uncertainty are $2100 and -$2100, respectively.

The conclusion drawn was that we tend to take risks when the outcome could be negative and not take risk when there's the opportunity for a guaranteed positive outcome.
#1 Mike on 2007-01-10 10:41 (Reply)
See the Monty Hall problem:

http://en.wikipedia.org/wiki/Monty_Hall_problem
#2 rightwingprof (Link) on 2007-01-10 15:20 (Reply)
theres an episode on the first Star Trek series, where an alien spacecraft has the Enterprise trapped. Spock tells Kirk that it s "checkmate" Kirk asks Spock if he has ever played poker. Spock says no. The Captain tells Uhuara to send out a fake message that the ship will self distruct out to so many parsecs. She does this, and the alien ship stops it's attack on the Enterprise. Spock says "interesting, this poker" Kirk says" yes it has some advantages over chess. Remind me to teach it to you some time". Once again, why Spock is not Captian, and Kirk is.
#3 Mark Sullivan on 2007-01-11 04:35 (Reply)

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