
Why the Most Important Idea in Behavioral Decision Making Is a Fallacy - tb5036t
https://blogs.scientificamerican.com/observations/why-the-most-important-idea-in-behavioral-decision-making-is-a-fallacy/
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sfink
I can't trust anything in this article when its counterexamples are bogus and
it doesn't cite evidence for its position.

Paying a higher price is not a loss. Loss is when you have something and lose
it. Paying more money in exchange for a product is something else.

"You will lose out if you don't buy our product" is not a loss. It is lack of
a gain, which is psychologically very different.

People's ratings of a $10 loss may not correlate very well with people's
actions when faced with a $10 loss.

With this many basic errors, I can't make out whether the author's strawman
has any substance or not. The author is hung up on things that could be
logically equated to losses, which is bizarrely irrelevant when the effect
under question is specifically about how people's actual behavior differs from
logical behavior.

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dredmorbius
There are a number of related psychological and behavioural concepts which
strike me as modestly-useful but wide-of-the-mark.

The Marshmallow Test -- an assessment of short-term vs. long-term trade-offs
-- is one such case. It seems that the outcomes are far more reasonably
explained by whether an individual has been exposed to a high-trust or low-
trust environment, one in which promises are kept or broken. That is, even
under controlled conditions, the cognitive priors the subjects bring to the
experiment differ widely, and interpretations of claims differ.

Sunk cost strikes me as similar.

In the case of loss-aversion, there's the issue that under different
circumstances, a given loss may represent a minor setback, an entirely
inconsequential event, or a major, life-changing precipice. The distinctions
are highly contextual, and depend on both personal background and
circumstances.

This applies, incidentally, to organisations and firms as well as people. If
you're flying along with ample cashflow, a $5 billion penalty (a magnitude
recently experienced by a large tech firm) could be tolerable. If you're
scating on a wing and a prayer, tight margins, and market perceptions subject
to wild swings (say, as a short-term office-space "tech" startup headed by a
dynamic leader with flexible moral and epistemic standards), a few well-timed
blog posts might prove disruptive if not fatal.

Context matters. Discontinuities exist. Priors differ.

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perl4ever
"The Marshmallow Test -- an assessment of short-term vs. long-term trade-offs
-- is one such case."

The problem with psychological research is that researchers assume they have
thought of everything that could possibly occur to a subject, and that
subjects take everything they are told at face value whenever necessary for
the validity of an experiment.

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dredmorbius
I've lived long enough to see many of my own "obvious but lay objections"
become mainstream.

In multiple fields, not just psychology. That's problematic. If mildly
reassuring.

(Though suspicion is not experimentally validated refutation.)

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LatteLazy
With anything to do with the brain (from sociology to physiatry and right
through behavioral economics), we're really still deep in the dark ages. We
know basically nothing and the fields themselves seem to be more about styles
than objective truth or repeatability. Generously I assume that's because
making measurements and doing experiments is as hard today as it was for
scientists in the 10th century...

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lonelappde
What's the reason for believing one scientist's result over another's? Perhaps
the author is wrong and his predecessor is right?

The OP is an opinion piece with a clickbait headline.

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occamrazor
Loss aversion may not be a psychological phenomenon, but it is definitely a
real thing in most financial markets.

The entire insurance and reinsurance industry are based on loss aversion.

~~~
benchaney
Insurance is about risk aversion (which is reasonable in some cases), not loss
aversion (which is completely irrational)

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perl4ever
I'm not sure of the difference, but before I go look for educational material
on how these phrases are used, obviously(?) risk is an abstract idea that we
can never actually measure or demonstrate even in retrospect, whereas losses
are a fact of life that everyone experiences. So it sounds very odd on the
face of it to say loss aversion is irrational and risk aversion is not.

Would you say that evolution is fundamentally irrational? It's certainly
unavoidable.

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lonelappde
Loss aversion refers to a preference for "not getting something you don't
have" over "losing something you do have", even when the thing you don't gain
is worth more.

It's nearly wholly irrational.

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perl4ever
Worth more? Who considers value to be an objective thing? Certainly not any
economist I've ever heard of. How could you have trade at all if value was
objective?

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mtVessel
I don't understand the author's claim that the sunk-cost fallacy has nothing
to do with loss aversion because, "...[loss aversion] requires a comparison be
made between losses and gains." Any consideration of sunk costs is an implicit
comparison against what might be gained by investing one's resources
differently.

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RachelF
Sadly, as Kahneman now admits, many of the studies behind behavioral economics
just haven't replicated.

Along with Loss Aversion, the whole idea of Priming also seems null.

