Monday, January 14, 2008

People do Strange Things with Money

Would you rather earn $50,000 a year while other people make 25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.

According to Michael Shermer of the LA Times, "research shows that the majority of people select the first option; they would rather make twice as much as others even if that meant earning half as much as they could otherwise have. How irrational is that?"

Shermer spells out people's desire to avoid regret saying, "Regret falls under a psychological effect known as loss aversion. Research shows that before we risk an investment, we need to feel assured that the potential gain is twice what the possible loss might be because a loss feels twice as bad as a gain feels good. That's weird and irrational, but it's the way it is. "

It's soo true... we do avoid regret. There are no less than 5 current game shows that high-light this part of our brains. Reading this article I couldn't help but think about the famous TV game show "Are you Smarter than a 5th Grader?". No one has reached and beat the million dollar question largely due to the way the win/loss is setup for each question.

Anyway, I won't try to put the whole article in quotes here... just go read it.

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